Shares of Manappuram Finance rose 3% in intraday trade on Tuesday to close at Rs 116.85 on the BSE, extending gains over the past four days. Also, the stock has gained 6% over the past week while the S&P BSE Sensex lost 0.11%.
Shares of the non-banking financial company (NBFC) have risen 14% so far in March, compared with a 1.9% drop in the benchmark index. The stock increased to its 52-week high of Rs 126 on April 7, 2022.
Manappuram Finance has been catering to the credit needs of the lower socio-economic segments, especially in rural and semi-urban areas of India. The company offers a range of retail credit products and financial services. Its diversified loan portfolio includes retail, microfinance, SME and commercial clients. It has been the second-largest gold financial NBFC in India.
Over the past few years, banks have become major players in the gold lending industry. During the same period, the growth rate of new gold loans from banks was higher than that of non-bank loans.
On the demand side, gold loan activity by Indian individuals, households and businesses is expected to increase amid tighter credit and rising gold prices, as well as an economic slowdown leading to increased financial stress due to loss of income. In addition, they may continue to re-borrow (re-collateralise gold to draw down more new loans) if credit standards tighten for other financial instruments. On the supply side, banks intend to aggressively expand their gold lending assets by modernising their existing digital lending infrastructure to reduce turnaround times.
The gold loan NBFC industry is characterised by relatively high operating expenses (ranging from 4% to 6%), which is offset by relatively high spreads and the lowest cost of credit (historically ranging from 0.5% to 1%), resulting in a healthy return on total assets (ROTA).