Manappuram, Muthoot Finance shares in focus after Gold prices sell-off in global markets

Shares of Gold financing companies, Manappuram Finance Ltd., Muthoot Finance Ltd., and CSB Bank Ltd., will be in focus on Friday, March 20, after Gold prices saw a sharp sell-off in the global markets overnight.

Gold prices are now down 16% from their peak of over $5,600 an ounce in the global markets. This is despite the US-Iran war, and with Gold being considered a haven asset during uncertain times. Prices are now on course for their worst weekly drop in six years.

Rising fears of the economic impact of the war, a stronger US Dollar, dwindling prospects of rate cuts from the US Federal Reserve, are all contributing to the downside for bullion. All of these scenarios, are negative for the yellow metal.

Gold prices are down 11% in the last one month.

A fall in gold prices will squeeze the loan-to-value ratio for these companies. If gold prices fall, the value of the gold pledged also declines and if the gold value falls below the outstanding loan amount, including interest, the lender faces a potential loss.

For Muthoot, the current LTV ratio stands at 57%, while for Manappuram, the figure ranges between 57% to 60%.

Fall in gold prices will also impact the Assets Under Management (AUMs) of the gold financiers as the ticket size will go down per gram, even as the number of customers may remain the same, but the total AUM may shrink.

During the third quarter, the tonnage growth on a sequential basis fell 1.9% for Muthoot, grew 3.2% for Manappuram, and remained flat for CSB bank.

Shares of Muthoot Finance are down 4% in the last one month, while those of Manappuram are down 13%. CSB Bank shares are down 2% during the same period.