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Backing of a liquid collateral and pricing power augur well
At a time when the country is reeling from the impact of the global outbreak of coronavirus (Covid-19), non-banking financial company (NBFC) stocks were among the worst hit. Their performance is expected to be hit due to stress across sectors. While these concerns are justified, gold finance companies — Manappuram Finance and Muthoot Finance — may be less impacted.
There is no doubt that both financiers have also faced operational disruption due to the lockdown; they have shut their branches. There could be some asset quality pressure as well. However, the highly liquid collateral (gold)-backed loans with typical asset tenure of less than 12 months and pricing power (to pass on higher costs) should augur well.
“The safety of money is most important in the current situation, when the degree of impact of Covid-19 is very difficult to ascertain. Nobody is able to estimate how long it will last. I think, gold finance companies are a better and safer choice among NBFCs,” says Deepak Jasani, head of research-retail, HDFC Securities.