Back in April this year, we wrote about the reasons why gold was all set to cross Rs 100,000 per 10 gm in the Indian market. You can read it here.
That has not only happened but the price of the yellow metal has not stopped rising since. The sharp up move has been quite impressive, more than doubling in the last 3 years.
Rising from just above Rs 50,000 per 10 gm back in September 2022, gold was trading at Rs 112,335 per 10 gm at the time of writing – a 120% gain.
This is the kind of return that would make stock market investors happy. For context, the Nifty is up just under 50% in the last three years.
The short term price momentum in gold is clearly strong as can be clearly seen in the chart below.
Gold Price (Rs) – 3 Years
The upcoming festive season is yet another reason for the bullishness in the market. The recent cut GST rates has improved consumer sentiment which could be reflected in good demand during the festive season.
And the rupee’s decline against the dollar to below 88 levels has added further fuel to the fire.
Then there is good old speculation. Recent trading activity has also contributed to the rising price of gold. All this is on the back of a solid uptrend in the international dollar price of gold.
Here’s what we wrote about this back in April…
Sentiment in the market is extremely bullish on gold right now.
Some investors are even considering selling stocks and just holding on to gold until the current period of negativity passes.
While such market behaviour may not be appropriate in the long term, the fact is most investors care more for short term returns than long term returns.
As things stand, the gold bulls have the upper hand.
However, investors should carefully watch out for any potential changes to the underlying factors driving up gold.
Well, that was about the gold price.
What about the stock market?
Which stocks should be on your watchlist with gold at record highs?
#1 Manappuram Finance
Manappuram Finance is a leading Indian non-banking financial company (NBFC) specialising in gold loans. The company earns a significant portion of its revenue from lending against gold.
When gold prices rise, the value of pledged gold increases, allowing customers to borrow higher amounts. This usually boosts loan disbursements and supports the company’s profitability.
The company has a strong position in the market. It has delivered a strong performance over the years.
Last year, the company faced a serious issue when the Reserve Bank of India (RBI) imposed a ban on Manappuram’s microfinance subsidiary, Asirvad Micro Finance, preventing it from sanctioning and disbursing loans during the quarter.
The ban was due to concerns over high pricing and significant mark-ups over funding costs.
Although the RBI lifted the ban in January this year, the restrictions led to a four-fold increase in bad loans and provisions in the microfinance unit, reaching Rs 4.7 bn at the end of 2024.
Despite the growth in the gold loan portfolio, the significant rise in the company’s operating expenses along with the loan loss provisions adversely affected profitability.
The stock market is now betting that the worst is behind the company after the microfinance clean-up effort and the rise in gold prices.
There’s also another reason for the market’s bullishness…
As per media report, Global investment firm Bain Capital could invest Rs 43.85 billion (bn) in Manappuram Finance for 18% stake in the company via a preferential allotment of shares and warrants at a price of Rs 236.
This will be a strategic stake, i.e., Bain Capital will have a say in the future direction of the company.
It could also trigger an open offer for an additional 26% stake in the company, although this will only become clear at a later date.
Manappuram Finance – Financials (FY21-25)
#2 Muthoot Finance
Muthoot Finance has, over the decades, evolved into India’s largest gold loan NBFC.
It provides finance against used household gold jewellery while combining its legacy values with a strong branch network and digital platforms.
The promoter family has been involved in gold-backed lending for decades, building deep trust across communities, especially in Kerala.
The company has been affected by the RBI’s new gold lending rules. But the growth momentum is so strong that company MD, Alexander Muthoot, has indicated that the management is considering raising the growth guidance from 15% to above 20%.
The net interest margin (NIM) guidance has been maintained at 5.5-6%.
The company is fully focused on growth at the moment. The management anticipates the assets under management (AUM) to grow strongly this year on the back of a 40% AUM growth last year.
Manappuram Finance recently completed an external commercial borrowing (ECB) fund raise of US$ 600 million (m).
The company’s recent financial performance has been strong.
Muthoot Finance – Financials (FY21-25)
#3 Titan
No discussion about gold in India is complete without mentioning jewellery. And in the Indian stock market, jewellery and Titan Company are nearly synonymous.
Titan has grown into India’s largest branded jewellery maker by value Jewellery is the largest revenue contributor, with brands like Tanishq, Mia, Zoya, and CaratLane.
The stock has been rangebound for many months largely due to the relentless rise in gold prices as well as the general slowdown in Indian consumer spending.
For Titan’s jewellery business gold is the main input and thus the most important cost. The company has tried to mitigate the cost pressure with price hikes wherever possible along with internal cost control measures and product diversification.
In the most recent quarter, the jewellery segment grew 18% YoY, though investors expected a much better performance.
High gold prices negatively affected consumer sentiment and buying patterns. Customers favoured lightweight and lower carat jewellery amid rising gold prices. This, in turn, impacted revenue growth.
While FY25 was marked by multiple external events that had varying impacts on the businesses in general, Titan’s businesses clocked yet another year of strong 22% revenue growth. The company crossed a milestone of Rs 500 billion (bn) of revenues for the full year.
In 2025-26, Titan aims to grow market share across all its businesses. This will be by catering to evolving consumer needs and preferences, including premiumisation and diversification of product offerings.
The company is focusing on premiumisation, including growing its premium brand Zoya. It also expects consumers to continue favouring lower-carat jewellery amid high gold prices.
While the short-term challenges are a concern, the company’s long-term fundamentals are strong.
Titan Company Financials – (FY21-25)
Conclusion
Gold stocks – either gold financing NBFCs or jewellery firms – will always be affected by sharp movements in gold prices, usually in opposite directions.
It’s the nature of the business and investors will have to take it in their stride. A certain level of volatility is an inherent part of these stocks due to the gold price factor.
However, this does not mean that gold prices should be the deciding factor for any investment decision in these stocks. That would be a mistake.
At the end of the day, these are companies, like any other, that aim to grow sales and profits. The fundamentals of these businesses vary from company to company. And this, along with the valuations, should be considered by investors.
Investors should evaluate the company’s fundamentals, corporate governance, and valuations of the stock as key factors when conducting due diligence before making investment decisions.
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