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Muthoot Finance Target Raised by Morgan Stanley on Gold Loan Surge
- Priya Sharma
- Jan 2
- 3 min read
Morgan Stanley has upgraded its price target for Muthoot Finance Ltd. to Rs 4,385 from Rs 4,050, maintaining an 'overweight' rating. This revision, released on December 30, 2025, highlights the company's outstanding gold loan growth metrics, which continue to exceed forecasts.
Muthoot's gold loan portfolio achieved 40% year-on-year growth and a 10% quarter-on-quarter increase. As of January 2, 2026, the stock is trading around Rs 3,809, pointing to considerable upside according to the new target. The upgrade reflects growing optimism in the secured lending space, driven by elevated gold prices and borrower preferences shifting toward collateral-backed options.
Company Overview
Established in 1939 in Kochi, Kerala, Muthoot Finance is India's leading gold loan non-banking financial company (NBFC). Operating more than 6,000 branches nationwide, it specializes in providing instant loans against gold jewelry to underserved segments, including rural households, farmers, and small business owners.
The core strength lies in its low-risk model, backed by physical collateral that ensures superior asset quality. Though the company has ventured into microfinance, housing, and vehicle loans, gold lending remains the primary engine for growth and profitability.
Robust Growth Metrics
Muthoot Finance posted 40% YoY growth in gold loans, accompanied by a 10% QoQ rise, closely aligning with the 41% YoY expansion seen in FY25. Earlier guidance for FY26 was raised to 30-35%, fueled by strong demand dynamics and regulatory emphasis on secured lending.
Higher gold prices have expanded loan-to-value opportunities, enabling increased disbursements with controlled risk. The segment's near-zero NPAs highlight its resilience, making it a standout in the NBFC sector.
Morgan Stanley's Upgrade Rationale
The price target increase is primarily attributed to Muthoot's superior execution in gold loans. Morgan Stanley elevated its loan growth assumptions to 50% YoY from 43%, resulting in upward revisions to EPS estimates for FY26 through FY28.
The brokerage forecasts 17.5% QoQ growth for Q3 FY26, bolstered by a 23% increase in average gold prices. This adjustment contributes to an 8% enhancement in the sum-of-the-parts valuation, with gold loans flagged as a key positive catalyst entering the results season.
Catalyst from Surging Gold Prices
The significant gold price rally throughout 2025-26 has provided a substantial boost to gold loan providers like Muthoot. Rising collateral values allow customers to borrow more against existing holdings, accelerating AUM growth.
In the Indian context, gold's enduring appeal as a safe asset, combined with stricter oversight on unsecured loans, has driven inflows. Muthoot's proven auction processes and minimal credit costs ensure sustained margins and stability.
Analyst Consensus and Valuations
Morgan Stanley's Rs 4,385 target ranks among the most optimistic. Across 25 analysts, 15 advocate 'buy', six suggest 'hold', and four recommend 'sell'. The consensus 12-month price target indicates a small potential downside, tempering enthusiasm with valuation considerations.
High return on equity and impeccable asset quality continue to garner support from multiple brokerages.
Potential Risks and Outlook
Challenges could arise from gold price fluctuations, evolving regulations, or heightened competition from banks. Muthoot's established dominance, ongoing branch expansions, and strong balance sheet serve as effective safeguards.
Supported by positive sector trends and revised guidance, Muthoot is set for robust performance ahead. It stands out as a defensive investment option amid market uncertainties.
In conclusion, Morgan Stanley's target raise reinforces Muthoot Finance's commanding position and promising trajectory in the gold loan industry, offering compelling prospects for growth-oriented investors.
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