Muthoot Finance tumbles 6% as RBI’s draft gold loan norms spark volatility; Kotak downgrades stock

Shares of Muthoot Finance slumped over 6 percent on Friday, April 11, following the Reserve Bank of India’s release of draft guidelines on gold-backed loans—a move that spooked investors and triggered sharp intraday volatility and a surge in trading volumes. The sell-off was sharp enough to briefly push the stock into a 10% lower circuit before a partial recovery.

The draft norms propose capping the Loan-to-Value (LTV) ratio at 75 percent, restricting bullet repayment loan tenures to 12 months, and mandating NBFCs to set limits on their gold loan portfolios. While RBI Governor Sanjay Malhotra later clarified the intent was to “rationalise” norms rather than tighten them, the street reaction remained nervous.

Kotak Institutional Equities downgraded Muthoot Finance to ‘Add’ from ‘Buy’, slashing its target price to Rs 2,250 from Rs 2,400 and cutting earnings estimates by 10%. The brokerage said, “While we await final norms, growth and margin assumptions have been moderated. The regulatory overhang will temper stock price performance.”

Axis Securities flagged the intensity of the sell-off, noting a 7 percent intraday decline and the highest single-day volume since January 2024. Open interest in futures surged by 20 percent, with 7.8 lakh shares added—marking the largest single-day build-up in a year and suggesting a heavy short build-up. The options market echoed a bearish tone with aggressive call writing.

Jefferies acknowledged some impact from the tighter LTV norms but noted the proposed rollover norms weren’t as severe as feared. The firm maintained a constructive stance on gold-loan NBFCs, naming Muthoot Finance as its preferred pick with a target of Rs 2,615.

CLSA viewed the guidelines as “marginally disruptive” to growth, building in 12–15% loan growth for Muthoot and Manappuram over FY26–27. Morgan Stanley, meanwhile, kept an ‘Equalweight’ on Muthoot, warning of near-term pressure, and said Manappuram could be better placed, citing Bain Capital’s open offer.

Muthoot’s peers saw mixed action: IIFL Finance was trading 1.1 percent lower, while Manappuram Finance was trading 0.8 percent higher. Manappuram remains under the F&O ban, preventing new positions.

While the final RBI rules will determine the long-term impact, Friday’s action reflected a nervous readjustment by the market, with technicals and sentiment turning negative for Muthoot in the short term.