RBI’s Draft - Business Outrank

Muthoot Finance stock price dropped 6% on April 11 when the Reserve Bank of India published draft regulations for gold-backed loans which caused market volatility and increased trading volume. Muthoot Finance experienced a brief 10% decline in value after the proposed regulations introduced an LTV ratio limit of 75% and bullet repayment loan time restrictions and gold loan portfolio regulations. RBI Governor Sanjay Malhotra attempted to reassure investors by stating that the goal was to "rationalise" regulations but investor sentiment shifted to a cautious stance. The downgrade of Muthoot Finance from 'Buy' to 'Add' by Kotak Institutional Equities resulted in a reduced target price of ₹2,250 and lowered earnings projections by 10%. The open interest in Muthoot Finance futures increased by 20% with 7.8 lakh shares added which represented the highest level in one year and showed a significant short position formation. The options market displayed negative sentiment because of intense call writing activity. The positive outlook on gold-loan NBFCs remained unchanged at Jefferies because the company kept Muthoot Finance as its top pick with a target price of ₹2,615. The guidelines issued by CLSA proved marginally disruptive but Morgan Stanley pointed out near-term risks which made Manappuram seem more advantageous. The short-term market performance of Muthoot Finance remains under pressure because investors want to know the complete RBI regulations.

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