A lower risk appetite among investors has driven gold, traditionally a safe-haven asset, to record highs so far this year.
Fuelled by geopolitical tensions in West Asia, robust demand from central banks — particularly in Asia — and US President Donald Trump’s tariff volleys, spot gold touched an all-time high of $2,956 per ounce on February 24 in the international markets.
In India, gold futures surpassed the Rs 86,000 per 10-gram mark on the Multi-Commodity Exchange (MCX) last month.
For stock market investors, this scenario presents a complex investment landscape that requires careful navigation.
Analysts suggest that the surge in gold prices will benefit gold financiers like Muthoot Finance and Manappuram Finance, while adversely affecting jewellery stocks.
"The upward trend in gold prices fosters a favourable environment for growth, particularly in the gold loan segment, which closely correlates with gold price movements," said Vinod Nair, head of research, Geojit Financial Services.
Typically, a rise in gold prices translates to a higher gold loan value, and vice versa.
Vinod Nair of Geojit Financial Services expects rising gold prices to support Muthoot Finance's asset under management (AUM) growth and asset quality for the medium term.
In the December quarter of the current financial year, Muthoot Finance reported a 22 per cent rise in net profit to Rs 1,392 crore as against the Rs 1,145 crore in Q3FY24.
Its consolidated loan AUM crossed Rs 1,11,000 crore. Of this, Muthoot Finance's gold loan portfolio stood at Rs 92,963.6 crore at the end of December 2024.
Nair is, however, 'neutral' on Manappuram Finance, citing the non-bank finance company's exposure in the non-gold segment as a concern.
In Q3, Manappuram Finance's consolidated net profit halved to Rs 282 crore from Rs 575.3 crore in Q3FY24.
Manappuram's total AUM stood at Rs 40,400 crore at the end of Q3FY25, according to Motilal Oswal's report, with the gold loan portfolio at Rs 20,800 crore in Q3.
According to data compiled by Bloomberg, IDBI Capital Market Services has maintained a 'hold' rating on Manappuram Finance stock for a target of Rs 200 per share.
Morgan Stanley also maintained 'equal weight' rating with a target of Rs 175 per share.
Meanwhile, rising gold prices, analysts said, pose headwinds for jewellery stocks as an increase in gold prices could lead to a decrease in jewellery demand and weak margins.
Higher competition and premium valuations also pose key challenges to the sector.
According to Bloomberg data, Titan's blended forward price-to-earnings (or BF P/E) stood at 58 times as compared to its 5-year historic average of 68 times, Kalyan Jewellers' current BF P/E stood at 47 times as against a 5-year historic average of 34 times.
Recently-listed PN Gadgil's current BF P/E stands at 24 times as against a 5-year average of 29 times.
"A prolonged rally in gold prices could lead to margin pressures due to lower volume sales, but brands with strong inventory management and premium offerings may sustain growth," said Siddhesh Mehta, research analyst, SAMCO Securities.
Vinod Nair of Geojit Financial suggests holding Titan shares given higher competition, uncertain margins, and a premium valuation.
Motilal Oswal has maintained a 'buy' on PN Gadgil shares for a target of Rs 950 per share.
Centrum Broking has a 'buy' call on Kalyan Jewellers for a target of Rs 676 per share.
Axis Capital has also continued with a 'buy' on Kalyan Jewellers for a target of Rs 575 per share.
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