Muthoot Finance shares fall 12% on Q3 results, 3% decline in gold prices; Manappuram, IIFL see rub-off effect

Muthoot Finance shares fall 12% on Q3 results, 3% decline in gold prices; Manappuram, IIFL see rub-off effect

• Muthoot Finance shares fell over 12% after Q3 profit surge.
• Profit rise driven by loan recoveries, not core business growth.
• Gold price drop and volatile demand also weighed on sentiment.

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Shares of Muthoot Finance dropped more than 12% on February 13, heading for their steepest one-day percentage decline in three-and-a-half years, as investors raised concerns over the durability of a surge in third-quarter earnings.

The shares were down 11.2% at Rs 3,610 apiece in afternoon trade and benchmark Nifty 50 was down 1%.

The gold loan provider posted a near doubling of its quarterly profit to Rs 2,656 crore on February 12.

Gold financiers have benefited from record-high gold prices and tighter lending norms in unsecured retail loans, which have pushed borrowers towards gold-backed financing.

Sentiment towards the stock was also affected by the fact that gold prices fell 3% on February 12, breaking below the $5,000-an-ounce key support as selling pressure intensified after an equities rout.

The yellow metal also come under pressure after data released on Wednesday showed the U.S. job market began 2026 on firmer footing than expected, reinforcing the view that policymakers may keep rates elevated for longer.

Investors now await inflation data, due later in the day, for more cues on the Fed's monetary policy path, with two 25-basis-point cuts currently priced in this year, the first of those expected in June. Non-yielding bullion tends to do well in low-interest-rate environments.

Gold flipped to a discount in India this week for the first time in a month on subdued demand as volatile prices deterred buying, while the China market saw robust demand as it heads into the Lunar New Year celebrations.

Consequuently, shares of Manappuram Finance and IIFL Finance declined 1.8% and 2.1%, respectively.

In a note earlier this week, CLSA said gold prices have risen more than 20% in the past three months, driving strong growth in firms' gold loan assets.

Brokerages said that a large part of Muthoot Finance's third-quarter profit came from write-backs on loan recoveries, while the firm's core margins softened sequentially and customer additions dipped.

Ambit Capital said in a note that about Rs 640 crore of the earnings came from interest income recovered from non-performing loans, which it described as non-recurring.

Adjusting for this, earnings were largely in line with estimates, the brokerage said, adding that current valuations "leave no margin of error."

Jefferies said the finance company's core net interest margins fell about 70 basis points sequentially, even as reported margins improved on recovery-related income.

The brokerage flagged a 1% sequential decline in active customers and lower loan-to-value ratios amid a spike in gold prices.

CLSA called it "another strong quarter" for Muthoot, citing robust loan growth and stable operating costs, but noted a slowdown in customer additions and a sequential dip in gold tonnage.

"Investors are questioning whether the strong performance in December quarter can sustain and it seems that it could be difficult," said Aamar Deo Singh, senior vice president at Angel One, adding that while the profit doubled, a significant portion of it came from interest income write-backs.

"Gold loan tonnage has dropped, while growth in customer addition has slowed due to high gold prices," Singh said.