Gold Loan NBFC Stocks Face Severe Selling Pressure Amid Gold Price Collapse
Gold loan non-banking financial company (NBFC) stocks experienced intense selling pressure during a special trading session on February 1, with leading players Muthoot Finance and Manappuram Finance plummeting by 7.6% and 6% respectively. This decline continues a recent downward trend for both stocks, which have remained under pressure in recent trading sessions.
Sustained Correction in Gold Loan Stocks
Over the last three trading sessions, Muthoot Finance has corrected by a significant 10.5%, while Manappuram Finance has declined by approximately 9%. These stocks, which had enjoyed a strong bullish wave in recent months amid a sharp rally in gold prices, have now attracted bearish attention as the yellow metal has experienced a dramatic reversal, erasing much of its early-2026 gains.
Investor Concerns Over Gold Price Impact
The sharp decline in gold prices has raised serious concerns among investors about potential consequences for gold loan financiers. A sustained fall in bullion prices could lead to:
- Higher non-performing assets (NPAs) for gold loan companies
- Reduced lending prospects and slower loan disbursements
- Increased pressure on profitability
A significant drop in gold prices could force lenders to extend lower loan amounts against the same quantity of gold collateral, potentially slowing down loan disbursement activities. Furthermore, if gold prices continue their downward trajectory, borrowers might be required to add additional collateral or repay portions of their existing loans, which could result in higher NPAs for lending institutions.
Gold Price Crash Details
The sell-off in gold prices intensified during the special trading session, with February delivery contracts on the Multi Commodity Exchange (MCX) dropping another ₹13,468, or 9.2%, to reach a low of ₹1,36,185 per 10 grams. This follows a substantial decline of nearly ₹20,000 per 10 grams during Friday's regular trading session.
The latest crash has brought gold rates down by ₹44,594 per 10 grams, representing a dramatic 25% decline from the recent peak of ₹1,80,779. This marks a significant reversal for the safe-haven metal, which had maintained strong investor confidence for 14 consecutive months, during which prices surged by an impressive 96%.
Key Factors Driving Gold Price Decline
Several factors have contributed to the dampened investor sentiment toward gold:
- Warsh Nomination: The primary trigger was the nomination of Kevin Warsh as the next US Federal Reserve Chair, fueling speculation of a more hawkish monetary policy and higher interest rates. Market movements suggest traders are dialing back expectations for policy easing under Warsh, who served as a policymaker from 2006 to 2011 and often emphasized inflation risks.
- Firm US Dollar: The anticipation of tighter monetary policy has boosted demand for the US dollar, which strengthened by 0.73% in Friday's session to reach 96.99. A stronger dollar makes dollar-priced precious metals more expensive for holders of other currencies, reducing demand.
- Margin Hike: Amid sharp volatility in both gold and silver prices, CME Group is increasing margins on COMEX gold and silver futures. According to Bloomberg reports citing exchange statements, gold margins will rise to 8% of contract value from 6% for non-heightened risk profiles, while silver margins will climb to 15% from 11%.
Operational Challenges for Gold Loan Companies
While gold loan lenders can auction pledged gold if borrowers fail to meet margin requirements, this process could increase operating costs and put additional pressure on profitability. Moreover, falling gold prices tend to reduce the overall appeal of gold loans as a financing option, potentially dampening fresh demand from new borrowers.
The combination of these factors creates a challenging environment for gold loan NBFCs, which must navigate reduced collateral values, potential increases in NPAs, and changing borrower behavior in response to volatile gold markets.
