Muthoot Finance shares zoom over 90% in one year; top four factors behind the rally

Shares of Muthoot Finance are buzzing in trade on Friday after the company reported robust earnings in Q2FY26. The earnings reported a sharp improvement in profits and the balance sheet, as Q2 net profit jumped 88% YoY and reached the highest ever loan AUM for the quarter. Following the upbeat numbers, shares of Muthoot Finance locked in 10% upper on Friday morning.

The shares have been one of the top performers in the NIFTY midcap 100 index, with over 90% returns in the period of one year, slightly below its competitor, L&T Finance, which more than doubled in the same period. Here is what led to a sharp rally in Muthoot Finance.

Soaring gold prices

Gold prices have been the top performer in all asset classes in 2025, with over 40% returns in this year. The sharp rally in gold prices has aided strong demand traction for gold lending companies like Muthoot Finance. Mutthoot Finance, India’s largest company in the gold financing category in terms of loan portfolio. With a sharp rally in gold, the gold loan AUM hit record high levels at ₹1.24 lakh crore, up by 45% YoY. The total gold jewellery kept as security against borrowing jumped from 199 tonnes to 209 tonnes. However, the total gold loan AUM forms only 43% of the total value of gold kept under security, which takes care of liquidity.

Higher AUM growth to superior yields

The strong AUM growth, along with better collection efficiency, has yielded strong margins for the company. The average yield on the loan AUM stands at 18.4, and the average interest expenses stand at 7.04%, with an indicative net-interest margin of 11.45% for the quarter. The net-interest margins have started showing improvement after remaining stagnant in the range of 11.2% to 11.3% in FY23 and FY24. For Q2FY26, the net interest improved from 11.5% in Q2FY25 to 12.66%, indicating superior interest income growth and efficient use of capital.

Strong consolidated business growth

Along with the robust standalone entity, the subsidiaries have posted upbeat performance. Muthoot Home Finance, a wholly owned subsidiary, posted a 33% YoY jump in loan AUM at ₹3,247 crore for H1FY26. Belstar Microfinance, where the company holds 66% stake, narrowed down its net loss in Q2FY26 to ₹32 crore from ₹128 crore in Q1FY26. Similarly, the Muthoot Money posted a turnaround in H1FY26 at ₹106 net profit vs ₹5 crore net loss in the same period last year.

Improvement in asset quality

Despite the sharp rise in the lending portfolio, the asset quality also showed strong improvement over the past four quarters. The stage III loan assets for the quarter ended September stood at ₹2,977 crore, improving from ₹3,880 crore from the same period last year. As a result, the Stage III loan assets as a percentage of gross loan assets also improved from 4.3% to 2.25%. Similarly, the Stage II loan assets improved from ₹1,203 crore in Q2FY25 to ₹534 crore in Q2FY26.