Investment bank Jefferies has issued a 'Buy' rating for Manappuram Finance Ltd., projecting a substantial 34% upside from its recent closing price. Concurrently, the firm maintained a 'Hold' rating for Muthoot Finance Ltd., highlighting the increasing competitive landscape within India's gold loan sector.
Gold Loan Market Heats Up
The gold loan market in India is experiencing robust growth but also intensifying competition. Retail loans against gold jewellery surged by 80% year-on-year as of July 2026, while overall gold loans, including agricultural gold loans, rose 50% to an estimated Rs 18.6 lakh crore. This growth is primarily fueled by higher gold prices and a greater willingness among households to leverage their gold assets.
New market entrants are rapidly expanding their footprint, with their gold loan portfolios growing 2.5 times year-on-year to Rs 61,900 crore by June 2026, capturing 7.6% of the retail gold loan market. Jefferies estimates these new players could add approximately 3,700 branches in FY27, a significant increase from 1,500 in FY26, potentially equaling about 20% of the branch network of the top four established gold loan Non-Banking Financial Companies (NBFCs).
Bajaj Finance is emerging as a particularly aggressive competitor, with gold loan assets under management (AUM) reaching Rs 21,200 crore by June 2026. The company aims for Rs 30,000 crore AUM by FY27 and plans to open around 110 branches monthly.
Competition is also spreading beyond traditional southern Indian strongholds like Tamil Nadu, Andhra Pradesh, Karnataka, and Telangana, which historically account for 70% of gold loans. New entrants are focusing on northern, western, and central states, including Uttar Pradesh, Rajasthan, Gujarat, Maharashtra, and Madhya Pradesh, driving origination growth in these regions.
Manappuram Finance: A 'Buy' with Strong Upside
Jefferies retained its 'Buy' rating on Manappuram Finance, citing its smaller operational base as an advantage for delivering stronger customer additions and AUM growth. The brokerage anticipates net interest margins to stabilize, with operating leverage and reduced credit costs potentially driving a 2.8-fold increase in profit after tax between FY26 and FY28. Returns are also expected to improve over this period.
The valuation of Manappuram Finance is considered reasonable at 1.5 times its estimated FY1 book value. Jefferies has set a target price of Rs 430 for the stock, implying a 34% upside from the September 9 closing price referenced in their report.
Manappuram Finance is also actively expanding its network, with 4,054 branches as of June 2026 and plans to open an additional 500 gold loan branches in FY27. Approximately 60% of this expansion is targeted for South and Central India, including Maharashtra, while 38% is slated for eastern states such as Bihar, West Bengal, and Odisha.
Muthoot Finance: 'Hold' Amidst Growth Challenges
For Muthoot Finance, Jefferies maintained a 'Hold' rating. While acknowledging Muthoot's position as the strongest gold loan franchise with significant leverage to gold prices, the brokerage suggests that the company's larger existing base and the surge in competition could constrain growth if gold prices remain range-bound.
Muthoot Finance is responding to increased competition by diversifying its product offerings, including various ticket sizes, loan-to-value ratios, and balance-transfer options, aimed at defending yields and customer retention. As of June 2026, Muthoot operated 6,127 branches and plans to add 500-600 more in FY27, with expansion focusing on cities like Lucknow, Jaipur, Delhi, and Jalandhar.
Jefferies set a target price of Rs 3,300 for Muthoot Finance, indicating about 17% upside from the September 9 closing price. The valuation, at 2.1 times its estimated FY1 book value, is considered reasonable, aligning with its five-year average for a business capable of generating a 25% return on equity.
Gold Prices: A Crucial Factor
For both Manappuram Finance and Muthoot Finance, gold prices remain the most significant variable influencing loan growth. Higher gold prices typically increase the collateral value for borrowers and can alleviate some competitive pressures. However, recent market dynamics saw gold prices fall 6% after an August rally of 15%, influenced by rising US yields, hawkish Federal Reserve statements, and strong US payroll data, posing near-term headwinds.