India's Muthoot Finance slides as investors question durability of earnings jump

By Admin

14 Feb, 2026

Market Reaction

Shares of Muthoot Finance fell sharply on Friday, declining more than 12% in what marked their steepest one-day percentage drop in nearly three-and-a-half years. By 11:23 a.m. IST, the stock was trading 12.3% lower at ₹3,566.50.

In comparison, India’s benchmark index, the Nifty 50, was down 1.02%, highlighting that the fall in Muthoot Finance was significantly steeper than the broader market decline.

What Triggered the Fall?

The correction came after investors began questioning whether the company’s sharp jump in third-quarter earnings is sustainable.

Gold financiers like Muthoot Finance have benefited in recent quarters from:

• Record-high gold prices
  
  

• Tighter lending norms in unsecured retail loans
  
  

• A shift of borrowers toward gold-backed financing
  
  

While these tailwinds boosted profitability, market participants are now reassessing whether the December quarter’s strong performance can be maintained going forward.

Analyst Concerns

According to Aamar Deo Singh, Senior Vice President at Angel One, investors are skeptical about the durability of the earnings surge.

Although profits doubled year-on-year, a significant portion of the jump was attributed to interest income write-backs rather than core operational strength.

He further pointed out:

• Gold loan tonnage has declined
  
  

• Customer growth has slowed
  
  

• High gold prices are discouraging fresh borrowing
  
  

After adjusting for these factors, earnings were largely in line with expectations. However, analysts cautioned that current valuations “leave no margin of error.”

Margin Pressure and Operational Trends

Global brokerage Jefferies noted that core net interest margins (NIMs) declined about 70 basis points sequentially. Reported margins appeared stronger mainly due to recovery-related income rather than fundamental lending growth.

Jefferies also flagged:

• A 1% sequential decline in active customers
  
  

• Lower loan-to-value (LTV) ratios
  
  

Meanwhile, CLSA observed a slowdown in customer additions and a dip in gold loan tonnage on a sequential basis.

Stock Performance Context

Despite the sharp correction, Muthoot Finance’s stock has delivered strong returns in the recent past:

• Up 6.7% so far in 2026
  
  

• Surged 78.4% in 2025
  
  

The stock currently carries a “hold” rating on average from 21 analysts, reflecting a balanced outlook amid near-term uncertainties.

With gold prices near historic highs and regulatory tightening in unsecured lending continuing, the long-term structural demand for gold-backed loans remains intact. However, investors appear cautious about whether recent earnings momentum can continue without extraordinary income components.

As the gold financing sector recalibrates amid valuation concerns and moderating growth metrics, the coming quarters will be crucial in determining whether Muthoot Finance can sustain its earnings trajectory.

($1 = ₹90.6850)