Gold finance stocks doing well, but await correction before investing

A healthy loan growth and asset quality should help protect return on assets, but these may be priced in

Despite the stress non-banking finance companies (NBFCs) are going through, one segment i.e gold financing has remained an outlier. The stocks of two gold finance majors -- Manappuram Finance and Muthoot Finance -- have surged 20-39 per cent in the last three months, outperforming the 10 per cent rise in leading indices such as the BSE Sensex. What is enthusing the Street towards this set of NBFCs is their ability to sustain the strong return ratios amidst a challenging environment.

In the first-half of FY20, i.e April-September 2019, return of assets (RoA) of both these lenders stood at 5.5-8 per