Gold has been on a record-breaking run this year, fuelled by a mix of investor caution, geopolitical tensions in West Asia, and central bank buying, particularly in Asia. Adding to the momentum are trade uncertainties sparked by US policies.
On February 24, spot gold reached an all-time high of $2,956 per ounce in international markets. Back home in India, gold futures crossed the ₹86,000 per 10 grams mark on the Multi-Commodity Exchange (MCX) last month.
For stock market investors, the gold rally presents both opportunities and risks. Analysts suggest that gold finance companies like Muthoot Finance and Manappuram Finance could benefit, while jewellery stocks might take a hit, according to a Business Standard report.
Analysts suggest that gold finance companies like Muthoot Finance and Manappuram Finance could benefit, while jewellery stocks might take a hit
Gold loan providers typically see an uptick in business when gold prices rise, as higher prices mean bigger loan values. Muthoot Finance, for instance, reported a 22% jump in net profit in the December quarter, reaching ₹1,392 crore compared to ₹1,145 crore in the same period last year. Its consolidated loan assets under management (AUM) crossed ₹1,11,000 crore, with its gold loan portfolio making up ₹92,963.6 crore as of December 2024.
Similarly, Manappuram Finance had an AUM of ₹40,400 crore by the end of Q3 FY25, with its gold loan portfolio standing at ₹20,800 crore, according to a report by Motilal Oswal. As for stock recommendations, IDBI Capital has maintained a ‘hold’ rating on Manappuram Finance with a target price of ₹200 per share, while Morgan Stanley has kept an ‘equal weight’ rating at ₹175 per share.
On the other side, the jewellery sector may feel the pinch. A spike in gold prices often leads to weaker demand for jewellery, squeezing profit margins. Competition in the industry is another concern, and high valuations add further pressure. Titan’s blended forward price-to-earnings (BF P/E) ratio stands at 58 times, compared to its five-year average of 68 times. Kalyan Jewellers' BF P/E ratio is 47 times, exceeding its five-year average of 34 times. Recently listed PN Gadgil, however, currently trades at a BF P/E of 24 times, lower than its five-year average of 29 times.
That said, brands with strong inventory management and premium offerings might still find ways to sustain growth despite the pricing pressure. Centrum Broking has issued a ‘buy’ call on Kalyan Jewellers, setting a target of ₹676 per share, while Axis Capital has also maintained a ‘buy’ rating with a target of ₹575 per share.
In a nutshell, if gold prices keep climbing, jewellery brands might have to brace for a slowdown in sales. On the flip side, gold loan companies could see a continued boom in business.
Gold prices in Kerala remain strong, reflecting the broader global trend. As of today, the price stands at ₹64,480 per 10 grams, while one gram costs ₹8060.
