Muthoot Finance’s shares fell 6% on Friday, though its March quarter (Q4FY26) net profit more than doubled year-on-year to ₹3,080 crore, and FY26 profit increased by 95% to ₹10,134 crore.
The Street seems to be looking beyond the headline numbers, which were significantly aided by the extraordinary rally in gold prices during FY26. The key question now is whether FY26 was merely a cyclical windfall, or whether the gold financing cycle still has legs.
Gold prices surged roughly 65% during FY26 amid geopolitical uncertainty, aggressive central bank buying, and the fading appeal of US Treasuries. On cue, Muthoot’s consolidated AUM jumped 54% to ₹1.65 trillion, while interest income rose 61% to ₹27,067 crore in FY26.
Unlike Manappuram Finance, which sacrificed margins to chase growth even as its non-gold portfolio dragged down asset quality, Muthoot focused on profitable growth driven by gold loans (over 90% of its book). While Manappuram’s net interest margin (NIM) compressed sharply from 13.5% to 9.8% (as per Motilal Oswal Financial Services), that for Muthoot expanded from 11.3% in Q4FY25 to 13.4% in Q4FY26.
But for investor sentiment, much depends on whether Muthoot can sustain its good run.
The first concern is that much of the growth came from higher gold prices. Active customer base declined 1.8% sequentially in Q4FY26, and gold tonnage continued declining sequentially, with AUM growth increasingly driven by higher loan-to-value (LTV) ratios. So, we may not see an encore of the explosive AUM growth seen in FY26 if gold prices stabilize.
Competition is another big overhang. Deep-pocket lenders with lower costs of funds have rapidly entered the gold loan market, even as the demand for gold loans may fade amid increasing availability of unsecured loans with reducing stress.
Competition can weigh on yields, too. While Muthoot’s gold loan yields expanded to 20.8% in Q4FY26 after selective price hikes of 0.5-1%, part of this was aided by non-recurring income, including interest recoveries from legacy NPAs. With rising borrowing costs amid competition, yields can be expected to normalize.
As for asset quality, gross NPA improved to 2.34% in March 2026 from 3.35% a year ago, but worsened sequentially. While stage-2 and stage-3 assets expanded, that was largely driven by RBI-mandated borrower-level classification changes. Moreover, at 57-58% LTV, the management insists they are comfortably recoverable.
But a moderation in gold prices can flip this narrative by hurting loan growth, increasing LTVs, and consequently, worsening asset quality. While one school of thought expects gold price momentum to sustain on continued central-bank buying amid global geopolitical tensions, and the recent doubling of import duties, risks are emerging from rising bond yields and strengthening US dollar.
On the bright side, RBI has removed the requirement for prior approval for branch expansion by large gold loan NBFCs. Muthoot plans to add 400-500 gold-loan branches, including those under Belstar. This matters because gold lending remains relationship-driven, and operationally intensive, where Muthoot believes it has an edge over competition. “Higher gold prices, LTV headroom and branch expansion should support growth which coupled with operating leverage should drive 15% EPS CAGR, 25% ROE over FY26-28,” said Jefferies India’s analysts.
So far, so good. But the management’s FY27 AUM growth guidance stands at 15%, a sharp moderation from FY26’s eyewatering pace. Muthoot’s nearly 60% stock return over the past one year already reflects its premium positioning, and markets may no longer reward headline growth alone.
