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Star performer gold loan stock suddenly falls out of favour on Dalal Street

Up 150 per cent from its 52-week low, the stock of India’s largest gold financing company has been making the most of the recent spike in gold price.

Analysts said the company’s business outlook remains strong, but the stock is losing sheen gradually, because valuations have become toppish and have mostly baked in much of future growth prospects.

Higher gold prices potentially drive higher loan growth for gold lenders and provide investors comfort on underlying asset qualities of these non-banking financial companies.

This has held true even in the coronavirus hit environment, where the NBFC sector has been facing the greatest risks to asset quality. The stock has seen a rerating accordingly, and is up 152 per cent from its March low of Rs 477.50.

That said, the stock fell 0.6 per cent on Friday, in addition to a 5.29 per cent drop on Thursday, following the company’s June quarter earnings. Analysts said it would take some time before the earnings catch up with the high stock valuations. They see limited upside for the stock from here on.

Courtesy - The Economic Times



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