Muthoot Finance share price dips despite CLSA upgrade. Should you buy amid rising gold prices?

Muthoot Finance shares witnessed a decline in intra-day trading on Tuesday, February 11, despite receiving an upgrade from global brokerage firm CLSA. The downgrade came even as gold prices surged to new highs, prompting discussions on the impact of gold price movements on the company’s future performance.

CLSA’s Revised Outlook on Muthoot Finance

CLSA upgraded Muthoot Finance’s rating to ‘Outperform’ from its previous ‘Hold’ stance while raising the target price to ₹2,400 per share. The brokerage firm highlighted that gold loan momentum remained strong throughout the first nine months of FY25 (9MFY25), with banks reporting a 70 percent year-on-year surge in this segment as of December 2024. CLSA noted that the growth was led by the State Bank of India (SBI), and Muthoot Finance also benefited from this trend, particularly as restrictions on its competitors created a more favorable market environment.

Avinash Gorakshkar, Head of Research at Profitmart Securities also emphasized Muthoot Finance’s significant exposure to gold loans. He stated that with gold prices on the rise, the company is poised to see increased lending volume, which could contribute to improved financial performance in the upcoming quarters.

Meanwhile, Jefferies had initiated coverage on Muthoot Finance in July last year, citing multiple factors supporting gold prices. The brokerage pointed out that asset quality risk in gold lending remains low, while the company enjoys superior returns on equity (RoE) compared to most non-banking financial companies (NBFCs). Jefferies noted that Muthoot Finance’s valuation appeared reasonable, particularly since 82 percent of its assets under management (AUM) were in gold, providing a significant advantage in leveraging rising gold prices.

Gold Prices Hit New Highs

Gold prices surged to fresh record highs in Tuesday’s morning session, driven by concerns over US President Donald Trump’s aggressive tariff policies. On the Multi Commodity Exchange (MCX), gold futures for April 4 contracts soared to an all-time high of ₹86,360 per 10 grams. Similarly, international gold prices surpassed the crucial $2,900 level for the first time, with Comex Gold hitting a record high of $2,968.50 per ounce, fueled by increased safe-haven demand amid escalating trade war concerns.

Trump’s imposition of a 25 percent tariff on steel and aluminum imports reignited fears of a global trade war. Market experts attributed the recent gold rally to geopolitical uncertainties and aggressive central bank purchases, which have further strengthened investor confidence in the yellow metal.

“Gold prices have reached new highs in the international markets during today’s trading session. The yellow metal is now trading above the $2,900 mark, primarily due to President Trump’s latest tariff threats, which have increased demand for safe-haven assets like gold. Additionally, the US is expected to impose new 25 percent tariffs on all steel and aluminum imports, further exacerbating trade tensions. The looming possibility of a US-China trade war continues to support gold prices. Given the ongoing geopolitical risks and trade uncertainties, we expect gold prices to touch $3,000 internationally and ₹88,000 in the domestic market,” said Colin Shah, MD of Kama Jewelry.

Muthoot Finance Stock Performance

Despite the favorable outlook for gold prices, Muthoot Finance shares declined as much as 1.3 percent to an intra-day low of ₹2,169.60. The stock is currently about 6 percent away from its all-time high of ₹2,308.75, which it had reached on February 5, 2025. However, it has gained a substantial 72 percent from its 52-week low of ₹1,262.25, recorded in February 2024.

Over the past year, Muthoot Finance’s stock has surged 60 percent. However, in February so far, it has lost 3.5 percent after registering gains for two consecutive months. The stock rose nearly 6 percent in January and over 11 percent in December 2024.

Overall, while Muthoot Finance’s stock has shown resilience over the past year, its recent dip raises questions about short-term volatility. However, with rising gold prices and continued momentum in the gold loan segment, analysts remain optimistic about its long-term prospects. Investors should consider both the near-term fluctuations and the company’s strong fundamentals before making any investment decisions.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.