Is now the right to buy Muthoot Finance after sharp Q3 correction and gold stability?

Synopsis: Muthoot Finance shares rebounded 3% after a sharp correction post Q3FY26 results. Trading below industry PE levels, valuations appear reasonable with strong ROE and earnings growth. Morgan Stanley’s Rs 4,500 target adds optimism. However, gold price volatility and rising competition remain key risks for investors.

Gold loan stocks are known to experience volatility during market corrections, especially on the back of quarterly earnings. However, sharp declines may provide a comfort level for long-term investors. With gold prices being stable amidst global uncertainty, the sector is seeing renewed interest. In this context, investors are looking at whether the correction in Muthoot Finance is a potential buying opportunity or a cause for concern.

With a market cap of Rs 1.37 lakh crore, the shares of Muthoot Finance Ltd gained about 3% in today’s trading session and reached a high of Rs 3,441. When compared to its previous day’s closing price of Rs 3,353.25, it is trading at a PE of 15.8 compared to its industry PE of 18.1. 

Valuation Comfort After Sharp Correction

The correction in Muthoot Finance Ltd has brought about debate among investors about whether the current correction is an opportunity to invest in the company. The stock has seen a sharp correction in the wake of its 3QFY26 results, even as its gold loan business continues to grow strongly. However, the stock has been upgraded by Morgan Stanley, the global broking firm, which has given an overweight rating with a target price of Rs 4,500. This shows that the current correction is not an issue and is actually beneficial for the company.

One of the main reasons cited for the bullish view on the company is the increase in geopolitical risk, which is generally favourable for gold. The company’s business is directly related to gold, and the prices of gold have an impact on the demand for loans. The current situation is favourable for gold, and hence the overall NBFC space would improve for Muthoot Finance.

Valuation also plays a key role in the buying opportunity argument. As discussed, the stock currently trades at 13x FY27E P/E and 11x FY28E P/E with an FY28E P/B of 2.4x, along with a healthy 24% ROE. For a high-ROE, cash-generating NBFC with a strong history of asset quality, these valuations look reasonable. However, if the trend in earnings growth continues, along with gold prices remaining firm, the risk-reward might be favourable for long-term investors.

However, the risks cannot be ignored. A sharp fall in gold prices might affect the growth of loans. Secondly, the increasing competition in the gold loan business might affect the AUM growth as well as the NIM. However, the current correction might be a good tactical buying opportunity, but investors should consider the risks as well.

Financials 

The revenue from operations for the company stood at Rs 8,188 crores in Q3 FY26 compared to Q3 FY25 revenue of Rs 5,190 crores, up by about 58 per cent YoY. Similarly, the net profit stood at Rs 2,823 crore in Q3 FY26, up compared to the Rs 1,392 crore profit in Q3 FY25.

Written by Leon mendonca 

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