Affordable housing finance stocks could be gearing up for a strong rerating, according to global brokerage firm Bernstein, which believes the sector is emerging from a prolonged phase of moderation with improving business momentum, healthier asset quality and attractive valuations.

The brokerage remains positive on key affordable housing finance companies, including Home First Finance, Aadhar Housing Finance, Aavas Financiers, Aptus Value Housing Finance and PNB Housing Finance, with potential upside of up to 34% from current levels.

Bernstein has assigned a target price of Rs 1,450 to Home First Finance, implying the highest upside potential among peers at nearly 34%. Aadhar Housing Finance received a target of Rs 610, indicating an upside of close to 29%, while Aptus Value Housing Finance was valued at Rs 340, suggesting gains of around 30%.

For Aavas Financiers, the brokerage expects a relatively modest upside of about 5% with a target price of Rs 1,440. In contrast, PNB Housing Finance was given a target of Rs 960, implying limited downside from prevailing levels.

Bernstein sees bullish sentiment in sector outlook 

According to the brokerage, the affordable housing finance segment is witnessing early signs of a turnaround after facing pressure over the past few quarters due to macroeconomic uncertainty and stress in the microfinance ecosystem.

The March quarter performance reflected stronger operational momentum across the sector, with improving loan growth, stabilising business conditions and continued easing in asset quality concerns. Bernstein noted that fears around intense competition and borrower stress had earlier weighed on investor sentiment, but recent trends now point towards a gradual recovery in sector fundamentals.

The brokerage projected a meaningful rebound in disbursement growth during the fourth quarter of FY26. After slowing sharply in the first half of the fiscal year, largely due to broader economic uncertainty and spillover effects from the microfinance stress cycle, growth trends improved considerably.

Aggregate disbursement growth across affordable housing finance companies accelerated to 16% year-on-year in Q4FY26, compared with just 8% in the previous quarter. Most major players participated in the recovery, helping stabilise assets-under-management growth despite seasonally elevated loan run-offs.

Importantly, balance transfer activity remained stable, indicating that competitive intensity in the sector has not worsened materially.