Apr 15, 2013 08:29 PM IST | Source:

Gold-related companies' shares crash, Muthoot down 13%

Shares of companies associated with gold crashed on Monday, inline with the fall in prices of the yellow metal, under pressure in the international market over the last few days.

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Moneycontrol Bureau

Shares of companies associated with gold crashed on Monday, inline with the fall in prices of the yellow metal, under pressure in the international market over the last few days.

Stocks of gold finance firms Muthoot Finance and Manappuram Finance were down 13.13 percent and 9.8 percent respectively to Rs 121.85 and Rs  17.40.

Factbox: 6 reasons why gold is in bear market

Falling gold prices increase the risk for gold loan firms as the probability of defaults by customers increase. Last month, Manappuram shares were hammered after the company said it would have to write off an amount larger than what it had indicated earlier, due to a section of customers defaulting on their loans. When the fall in gold price in steep, customers find it profitable to default on the jewelry they had pledged with the gold finance firms, and then buy them at a lower cost in the market.

Gold jewelry company Titan Industries was down 4.37 percent to Rs 238.80.

"We are concerned about moderating gold price realizations (+8% YoY, -4% QoQ in 4QFY13), which has been a key driver of Titan’s growth in the past 5 years," brokerage house Citi said in a report downgrading the stock to a ‘sell’ last week.

"While it is difficult to quantify the numeric relationship between gold prices & jewellery volumes, we think that if gold corrects further, the “money chasing performance" phenomenon could reverse – something organised jewellers haven’t yet seen,” the note said.

Domestic gold price have declined 14.2 percent from its record high of Rs 32,500 per 10 grams in end-November 2012. It touched a one-year low and closed below the Rs 28,000 per 10 gram level last week. Disappointing data on US retail sales and consumer confidence and possibility of gold sales by Cypriot central bank along with other debt-stricken euro zone members are the key factors worrying investors.

Last week, US gold futures also hit their lowest since July 2011, with gold for June delivery falling to as low as USD 1,491.40 an ounce before recovering USD 1,503.80, down 3.9 percent.

Also Read: Gold loans Vs personal loans: Which is better option?

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