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Business News/ Markets / Stock Markets/  Muthoot Finance, Manappuram shares rally on spike in gold prices
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Muthoot Finance, Manappuram shares rally on spike in gold prices

Muthoot Finance and Manappuram Finance have also been beneficiaries of stable yields and growth in Assets Under Management (AUM). This is expected to receive further boost from the upward trajectory of gold prices and weaker growth in the unsecured loan segment, analysts said.

Muthoot Finance shares have gained over 43% in the past one year, while Manappuram shares have rallied over 45% during the same period.Premium
Muthoot Finance shares have gained over 43% in the past one year, while Manappuram shares have rallied over 45% during the same period.

Muthoot Finance share price jumped nearly 5%, while Manappuram Finance shares gained over 3% on Thursday after gold prices hit a record high following the US Federal Reserve monetary policy outcome.

Gold rate on the Multi Commodity Exchange (MCX) spiked over 1.5% to hit a fresh high of 66,778 per 10 grams. In the international market, spot gold prices rose above $2,200 per ounce levels.

Gold loan companies like Muthoot Finance and Manappuram Finance tend to benefit from the increase in gold prices as the value of the collateral held by these companies rises. This can lead to an increase in the ticket size of loans.

Read here: Gold rate today hits new peak of 66,778 after US Fed meeting. Should you buy in current gold price rally?

Moreover, the loan-to-value ratio (LTV), which represents the ratio of the loan amount to the value of the collateral (in this case, gold), tends to increase with rising gold prices, allowing borrowers to access a higher percentage of the value of their gold as a loan, leading to loan growth for gold financiers.

Muthoot Finance and Manappuram Finance have also been beneficiaries of stable yields and growth in Assets Under Management (AUM). This is expected to receive a further boost from the upward movement in gold prices and weaker growth in the unsecured loan segment, analysts said. 

Also Read: Nalco, Hindalco, Vedanta share price rise 2-6%. Should you Buy , Sell or Hold the stocks?

These companies have witnessed a notable positive quarter-on-quarter (QoQ) growth in gold loan AUM in the last three quarters.

Moreover, Muthoot Finance and Manappuram Finance have maintained their FY24 guidance for substantial gold AUM growth of 15% and 10%. Analysts believe the ascent in gold prices further acts as a tailwind.

Recently, ICICI Securities upgraded its rating on Muthoot Finance to ‘Buy’ from ‘Add’ earlier with a target price of 1,605 per share. It maintained a ‘Buy’ call on Manappuram Finance and raised the target price to 220 per share from 190 earlier. 

Read here: Muthoot Finance, Manappuram valuations turn attractive; rising gold prices add to tailwinds, says ICICI Securities

The gold prices spiked on the back of the US Federal Reserve’s decision to keep interest rates unchanged while signaling three rate cuts in 2024. The Federal Open Market Committee (FOMC) on Wednesday held the Federal Funds rate at 5.25% - 5.5%, the highest since 2001.

Gold acts as a hedge against inflation and tends to move higher when interest rates go down.

Read here: Fed signals three rate cuts this year; how will it impact equities and gold? Experts weigh in

The increase in gold prices bodes well for the AUM of gold financiers Muthoot Finance and Manappuram Finance as both enjoy a strong correlation between gold loan price and AUM.

The recent gains in Muthoot and Manappuram shares come after the Reserve Bank of India (RBI) barred IIFL Finance from sanctioning or disbursing any new gold loans.

Muthoot Finance shares have gained over 43% in the past one year, while Manappuram shares have rallied over 45% during the same period.

At 11:00 am, Muthoot Finance shares were trading 4.06% higher at 1,393.00 apiece, while Manappuram Finance shares were trading 2.04% higher at 169.90 apiece on the BSE.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 21 Mar 2024, 11:05 AM IST
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