Shares of gold loan companies Manappuram Finance and Muthoot Finance surged up to 5.2% on Friday, following gold prices hitting an all-time high amid expectations of an interest rate cut by the US Federal Reserve.
Manappuram Finance’s stock rose 5.2%, reaching an intra-day high of Rs 216.5, while Muthoot Finance gained 4.6%, peaking at Rs 2,078.75.
Impact of High Gold Prices on Gold Loan Companies
Both companies, which hold significant portions of their portfolios in gold loans, benefit from high gold prices as they enhance the value of the collateral they hold, thereby reducing risk and enabling higher loan disbursements.
Gold prices have surged 18% over the past three months and over 33% in the past year. Muthoot Finance reported an 11% sequential growth in gold loans for the June quarter, while Manappuram Finance saw a 10% increase during the same period.
Gold Prices Hit Record High Amid Economic Uncertainty
On Thursday, gold prices spiked more than 1% to a record high, driven by rising expectations of an interest rate cut by the Federal Reserve next week, following U.S. economic data suggesting a slowdown.
Additionally, the European Central Bank reduced interest rates by 25 basis points. As of 02:10 PM ET (1810 GMT), spot gold was up 1.7% at $2,554.05 per ounce, and U.S. gold futures closed 1.5% higher at $2,580.60. Gold is typically favored as an investment in low-interest-rate environments.
Current Stock Performance
Shares of Manappuram Finance are currently trading 3.3% higher at Rs 212.58, up 25% so far in 2024. Muthoot Finance shares are up 3% at Rs 2,044.85, reflecting a nearly 40% gain year-to-date, and outperforming Manappuram Finance.