Gold-loan-focused non-banking financial companies (NBFCs) delivered a strong performance in the first quarter of FY27, with Muthoot Finance and IIFL Finance emerging as preferred picks for BofA Securities. The brokerage retained an Overweight view on bonds issued by the two companies, citing improving fundamentals, earnings momentum and attractive spreads.
Gold-Loan NBFCs Lead Asset Growth
BofA's review of six Indian high-yield NBFCs showed that gold financiers recorded some of the strongest asset growth during the June quarter.
Manappuram Finance reported the highest year-on-year AUM growth at 57%, followed by Muthoot Finance at 43% and IIFL Finance at 38%. Shriram Finance and Piramal Finance also recorded healthy growth of 15% and 25%, respectively.
The strong growth comes at a time when rising gold prices are supporting demand for loans backed by gold collateral. Gold-financing stocks have also benefited from the recent rally in the precious metal, with Muthoot Finance, Manappuram Finance and IIFL Finance gaining strongly in recent trading sessions.
Why BofA Prefers Muthoot And IIFL
BofA maintained its Overweight recommendation on Muthoot Finance and IIFL Finance bonds. According to the brokerage, Muthoot continues to benefit from favourable conditions in the gold-loan market, resilient growth and controlled credit costs.
IIFL Finance has also shown an improving earnings trajectory and strengthening franchise, while BofA believes its ongoing income-tax matter remains manageable considering the company's balance-sheet strength.
By comparison, Shriram Finance, Manappuram Finance, Piramal Finance and Sammaan Capital have been retained at Marketweight. BofA believes that much of the expected recovery and improvement in credit metrics is already reflected in their current valuations.
Asset Quality Improves
Another positive factor highlighted by BofA was the improvement or stability in asset quality across almost all six NBFCs. Gross and net non-performing asset ratios either improved or remained stable during the June quarter.
Profitability also recovered as credit costs normalised, with particularly noticeable improvement at Manappuram Finance and IIFL Finance.
Gold Prices Support Sector Outlook
The gold-financing sector is receiving additional support from elevated gold prices. Gold recently crossed ₹1.63 lakh per 10 grams, contributing to a sharp rally in shares of major gold-loan companies. Higher gold values can increase the collateral available against loans and strengthen investor sentiment towards gold financiers.
However, BofA has also highlighted risks including weather-related disruptions to rural cash flows and potential AI-related employment pressures in some service sectors, which could affect retail and small-business lending portfolios.
Overall, the June-quarter performance has strengthened the case for India's gold-loan NBFC sector, with Muthoot Finance and IIFL Finance currently standing out as BofA's preferred names.
