Gold NBFCs growth to slow, says Investec; keeps Hold on Muthoot, Manappuram

Brokerage firm Investec has said that India's gold finance sector may be heading into a tougher phase after a goldilocks situation in FY26. It said that rising competition in the sector and a rebound in unsecured loan growth are expected to weigh on the growth and profitability.

 

Investec has retained 'Hold' rating on Muthoot Finance and Manappuram Finance for targets of ₹3,350 and ₹350, offering an upside of around 6 per cent and 9 per cent from their previous close of ₹3,171.90 and ₹321.60 on the NSE, respectively.

 

According to Investec, a sharp run-up in gold prices, constrained supply in unsecured lending (MFI), and regulatory scrutiny on select competitors were tailwinds for the gold NBFCs in FY26. As a result, gold is now India’s second-largest retail loan segment, behind only mortgages. Gold loan AUM as of March 2026 close was ₹18.6 trillion, up 50 per cent Y-o-Y.

 

 

The growth was boosted by loan sizes due to a sharp rise in gold prices. "The sharp increase in gold prices spurred an increase in higher ticket size loans in the loan mix of gold financiers. The share of more than ₹0.5 million loans increased to 42 per cent in FY26 from 20 per cent in FY24," the brokerage said. Notably, gold prices in FY26 increased by 78 per cent Y-o-Y.

 

Going forward, the brokerage expects competition to intensify in FY27 as "competitive intensity is at unprecedented levels, unsecured loan growth is rebounding, and the probability of a +15 per cent gold price rally looks low."

 

It estimates gold NBFC branch networks will expand by about 27 per cent in FY27E, versus roughly 12 per cent over the past two years, while MFI and personal loan asset quality have improved, and most players are guiding for more than 20 per cent growth in FY27E.    

 

Investec noted that gold NBFCs are dependent on the gold price, with negligible volume growth. It expects a 12 per cent gold price appreciation in line with long-term history.

 

Notably, gold NBFCs reported PAT declines in FY22–23 despite an 11-13 per cent rise in gold prices, suggesting they need more than 20 per cent gold price inflation to truly thrive.

 

"While gold NBFCs screen optically cheap on forward multiples, the challenge with cyclical businesses is that estimates seldom factor in earnings declines, which is exactly what we saw in FY22-23," the brokerage said in its report. 

 

Muthoot Finance is maximising near-term profitability while Manappuram Finance is focusing on growth, the brokerage said, adding that the former lost market share in FY26. In the case of Manappuram Finance, it has traded off near-term profitability for growth, and it will be interesting to see how it balances growth and profitability in FY27E.

 

Investec has cut PAT estimates for both the NBFCs to factor in a flat gold price in FY27E, a 10 per cent rise in FY28E and yield reduction from FY27-29E on account of higher competition.

 

The brokerage added that the recent regulatory changes by the Reserve Bank of India (RBI), including the relaxation of branch expansion norms and loan-to-value (LTV) restrictions, could support growth but may lead to bad behaviour and higher LTVs if lenders adopt aggressive lending practices.      ======================================= 

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