InvestorQ : Will the falling price of gold impact the price of stocks like Muthoot and Manappuram?
Anu Biswas made post

Will the falling price of gold impact the price of stocks like Muthoot and Manappuram?

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Ria Jain answered.
5 months ago
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The gold loan stocks like Muthoot and Manappuram have not correctly very sharply despite a sharp fall in the price of gold by nearly 17% since the peak levels of August. But, investors are gradually beginning to ask the question whether it would time to get out of Muthoot and Manappuram. After all, the performance of these companies is largely contingent on the prices of gold as elevated prices of gold gives them the advantage of full collateral.

However, if you look at the last six months since the price of gold peaked out in the international spot market, both the stock i.e. Muthoot and Manappuram have underperformed the Sensex. . In the last 6 months, Manappuram gained 14% and Muthoot gained 16% while the BSE Sensex gained 32% in the same period. Clearly, the outperformance of gold lending stocks has largely tapered with the price of gold.

The challenge for these gold loan companies is that if gold prices fall further to around Rs.40,000 / 10 gm levels, then these NBFCs may have to ask for more collateral or margins which may not come through all that easily in these tight markets. In fact, a sharper correction would mean these GFCs will ask customers to pledge more gold as most are at aggressive LTV ratios. If debasement of currencies continues, gold will still attract interest. That will be clearer in the near future.

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