BackGold loan companies sparkle among BSE 500 stocks in 2016
Gold loan firms touched a record high on Friday, on the back of newer products, easing regulations and a recovery in the gold prices
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Mumbai: Gold loan companies have been among the top gainers so far this year in the BSE 500 pack. They touched a record high on Friday, on the back of newer products, easing regulations and a recovery in the gold prices.
Strong investor interest in non-banking finance companies (NBFCs) has also augured well for this pack.
While the BSE 500 index has rallied 11.44% year to date, Manappuram Finance Ltd and Muthoot Finance Ltd jumped 205.60% and 102.55%, respectively, in the same period. While Manappuram ranked first in the stock performance in the pack year to date, Muthoot ranked third.
“NBFC companies at large have done well. One is the liquidity has eased off, which has brought down the wholesale rates," said Gaurav Dua, head of research at Sharekhan Ltd. He added that the recent success of initial public offers (IPOs) such as Equitas Holdings Ltd and Ujjivan Financial Services Ltd also kept the sentiment upbeat for these companies.
“Gold lending companies were not doing well earlier, as gold prices came down. Recovering gold prices and improving overall business condition for NBFCs has led to a significant re-rating of these stocks," added Dua.
Also Read: Did you know? You can use the BSE Star MF platform to buy gold bonds
MCX Gold prices had touched a 4-year low on 4 August 2015, and after that it traded in a narrow range until the end of last year, adding just 1.8%. This year, however, gold rallied, and has added 23.07% so far this year to ₹ 31,529 per 10 grams, the highest level since 28 October.
Over time, a change in norms such as the central bank easing rules in 2014 and allowing these firms to advance loans up to 75% from the earlier limit of 60% of the value of gold pawned has also helped boost growth. This along with the recent surge in gold prices has also been a boon for these companies.
In a note on 9 August, Edelweiss Securities Ltd analysts said that for Manappuram Finance, the growth levers were stabilising gold prices, lower LTV (loan to value) and lower auctions, and Manappuram now expects better traction in gold AUM (assets under management) growth of more than 29% over FY16-18.
“Around 4-5 years ago, when there was immense growth in gold loans, RBI (Reserve Bank of India) had taken steps to curtail the huge growth in them and the business had shifted to local money lenders, but later the central bank took suggestions and implemented some of them," said Pritesh Bumb, a research analyst with brokerage Prabhudas Lilladher Pvt. Ltd.
Also, innovations and expansion moves by the companies were paying off.
“With regulations easing, NBFCs also came out with newer products such as shorter duration products and cash loans. Some also diversified into areas such as housing finance. All these along with a recovery in gold prices augured well for these companies," said Bumb, adding that these companies had started seeing a recovery in the second half of the financial year 2015-16.
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