Shares of Muthoot Finance declined for the second consecutive session on March 24, continuing a two-day selloff driven by a sharp fall in global gold prices. Gold prices currently are down another $85 or 2% and trading below the $4,320 levels amid the tensions in the Middle East.
The stock fell almost 2% after opening at ₹3,141.00 against its previous close of ₹3,115.60, touching a session low of ₹3,053.00 and a high of ₹3,150.00. The 52-week range stands between ₹1,965.00 and ₹4,149.50. The stock had fallen approximately 5% in the previous session too, with the combined two-day decline now being around 7% for the stock.
A fall in gold prices is negative for Muthoot Finance because the value of the pledged gold collateral declines while the loan amount remains fixed, increasing risk. This raises the loan-to-value ratio and makes defaults more likely. In case of defaults, the company may recover less through auctions, leading to losses. Lower gold prices also reduce the loan amount customers can avail, slowing business growth. Overall, it weakens asset quality, profitability, and investor sentiment.
Gold prices have come under pressure as rising oil prices, driven by geopolitical tensions, have shifted central bank expectations away from rate cuts and toward a more hawkish monetary policy stance. Higher interest rates are generally negative for gold, which carries no yield, making it less attractive relative to interest-bearing assets. For Muthoot Finance however, higher interest rates carry a degree of offset, as lending businesses can potentially charge higher rates on loans.
Muthoot Finance is a non-banking financial company headquartered in Kerala, with gold loans constituting the core of its lending operations across thousands of branches nationwide.
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