Shares of prominent gold financing companies, such as Muthoot Finance Ltd, Manappuram Finance Ltd, and IIFL Finance Ltd, faced a significant downturn on Wednesday, plummeting by up to 9%. This decline followed an important announcement from RBI Governor Sanjay Malhotra regarding forthcoming guidelines on gold loans. These loans, commonly secured by gold jewelry and ornaments, are crucial for both personal consumption and income-generating activities.
RBI Governor’s Insights on Gold Loans
During his press conference, Governor Malhotra emphasized the need for cohesive regulations across various financial entities. He stated, “To ensure consistency in guidelines among regulated bodies, considering their unique risk-bearing capacities, we will soon issue comprehensive regulations on the prudential norms and conduct for gold loans.” This move is aimed at standardizing practices in the gold loan sector.
Clarifying Gold Loan Regulations
Governor Malhotra also took the opportunity to clarify misconceptions surrounding the regulation of gold loans. He asserted, “I have never indicated that gold loan regulations will be tightened. My statements were focused on rationalizing existing norms. A draft circular on gold loans will be available to the public shortly.” This reassurance aims to alleviate concerns among investors and stakeholders in the gold financing sector.
Impact on Gold Financing Firms
The significance of gold loans in the portfolios of these companies cannot be understated. Reports indicate that gold loans represent 98% of Muthoot Finance’s total Assets Under Management (AUM), while for Manappuram and IIFL Finance, these loans comprise 50% and 21% of their respective AUM.
Anshul Jain, Head of Research at Lakshmishree Investment and Securities, noted that the market’s reaction to the RBI’s announcement reflects the substantial exposure that Muthoot Finance and Manappuram Finance have to gold loans. The anticipated guidelines are causing a ripple effect in the market.
Stock Performance and Analyst Insights
On the BSE, Muthoot Finance shares opened at ₹228 and reached an intraday high of ₹228.55, with a low of ₹222. According to Rajesh Bhosale, an Equity Technical Analyst at Angel One, the stock experienced a sharp decline, dropping nearly 10%. He suggested that prices might continue to trend down toward the 200-day simple moving average, with resistance anticipated around ₹2,150. Traders are advised to avoid attempting to catch a falling knife, recommending that any upward movement should be used as an opportunity to exit long positions.
For IIFL Finance, share prices have remained within a range of ₹300 to ₹350 for several weeks, with a potential breakout needed for a directional move. Meanwhile, Manappuram Finance shares have breached short-term support levels and could slip further, with the next support target at ₹210.
Conclusion
The gold financing sector is currently navigating a complex landscape as it awaits the RBI’s new guidelines. With substantial portions of their assets tied to gold loans, companies like Muthoot Finance, Manappuram Finance, and IIFL Finance are at a critical junction. Investors and stakeholders will closely monitor the developments to gauge potential impacts on their financial futures.
