Gold-price volatility may cap gains for Muthoot Finance

Muthoot Finance had excellent Q2FY26 (second quarter of 2025-26) results which is unsurprising since its prospects are directly linked to gold price trends.

- DEVANGSHU DATTA

The company has decent asset quality and good growth prospects. But competition in gold finance is intense. There's likely to be pressure on yields and net interest margin (NIM) compression in the medium term.

While the bull-run in gold continues, the earnings trajectory is good. While most analysts are positive on the stock, with some advocating caution on the basis of the vulnerability to gold price trends and the anticipation of NIM and yield compression.

Muthoot reported net profit of ₹2,340 crore was up 87 per cent year-on-year (Yo-Y) with loan growth at 10 per cent quarter-on-quarter (Q-o-Q) and 47 percent Yo-Y to ₹1.32 trillion. Net interest income or NII growth was strong at 59 percent Yo-Y, driven by 47 per cent assets under management or AUM growth and 111 basis points Yo-Y NIM expansion. The NIM was at 12.7 percent, up 50 basis points Q-o-Q and yield around 20 per cent in Q2FY26 compared to 18.5 percent in Q1FY26.

Core yield (excluding ARC collections) was at 18.3 per cent in Q2FY26 with the rest from recovery of written-off loans. Management has guided for another ₹90 crore recoveries from the ARC pool in the next 2-3 quarters with potential for more.