The glitter of gold has translated into spectacular returns for investors in India's leading gold-loan companies. Over the past twelve months, shares of Muthoot Finance Ltd and Manappuram Finance Ltd have delivered staggering returns of nearly 94% and 68%, respectively. This remarkable rally has been powered by a sharp 70% surge in domestic gold prices, which has acted as a powerful tailwind for the sector. However, analysts now warn that soaring valuations and intensifying competition may dim the bling for future investors.
The Golden Surge: Profits and AUM Shine
The dramatic rise in the value of the underlying collateral—gold—has made loans against the precious metal an attractive proposition for borrowers. This trend was further amplified by recent regulatory curbs on unsecured personal lending, pushing more customers toward secured gold-backed credit. For Muthoot Finance, this perfect storm resulted in exceptional financial performance for the first half of the fiscal year 2025-26 (FY26).
The company reported a 47% year-on-year growth in its gold loan assets under management (AUM), building on a strong 43% growth in the previous fiscal year. This performance surpassed market expectations of a slowdown. The benefits flowed directly to the bottom line: in the second quarter of FY26 (Q2FY26), Muthoot's interest income jumped 55% year-on-year to ₹6,304 crore. A combination of robust NPA recoveries (₹300-400 crore), a lower cost of funds due to monetary easing, and a higher share of high-yield disbursements propelled the company's net profit to surge 87.5% to ₹2,345 crore.
Buoyed by this momentum, Muthoot's management has sharply revised its FY26 gold-loan AUM growth guidance upward from 15% to 30-35%. The company is also planning significant expansion, aiming to open 100-200 new branches annually to improve distribution, funded partly by a recently approved ₹35,000 crore non-convertible debenture issuance.
Manappuram's Diversified Approach: A Muted Shine
In contrast, the performance of rival Manappuram Finance has been more subdued. A key differentiator is the composition of its loan book. While Muthoot's portfolio was almost 95% concentrated in gold loans in Q2FY26, gold loans accounted for less than 70% of Manappuram's assets. This deliberate diversification away from the fast-growing gold loan segment has constrained its growth in that area, with gold loan AUM rising 30.1% year-on-year.
This, coupled with a decline in its vehicle and equipment finance portfolio, resulted in a standalone AUM growth of 18.7% year-on-year for Manappuram, explaining its relatively lower stock return compared to Muthoot.
Regulatory Winds and Competitive Clouds
Despite the golden run, the sector navigates a complex landscape of regulatory tailwinds and headwinds. Supportive measures like higher loan-to-value (LTV) caps and exemptions from credit assessment for small-ticket loans have fueled growth. Furthermore, the Reserve Bank of India's move to allow silver-backed loans from FY27 opens a new avenue.
However, challenges persist. Regulations requiring NBFCs to maintain LTV throughout the loan tenure, tighter guidelines on loan renewals, and a prohibition on lending against primary gold to curb speculation add operational complexity. NBFCs are also barred from offering loans for gold purchase or on re-pledged gold. These stringent standards can increase compliance costs.
Competition is heating up significantly. Banks have aggressively entered the space, with gold loans comprising almost a quarter of the personal loans they added in the twelve months ending October 2025. Microfinance institutions have also stepped up their gold lending activities. While NBFCs' gold loan AUM of ₹3 trillion is still dwarfed by banks' ₹13 trillion, indicating room for growth, the competitive intensity is undeniable.
The stellar run has pushed Muthoot's stock to a new 52-week high of ₹3,833. However, with the stock now trading at 3.5 times its estimated FY26 book value, it appears to be priced for perfection. Investors are advised to weigh the strong fundamental drivers against the rich valuations and the emerging competitive and regulatory challenges before making new commitments.
