The government introduced the import duty hike in order to stop the rupee’s free fall and moderate non-essential imports during a period of heightened global uncertainty linked to the Iran-US conflict, which continues to keep oil prices elevated above the $100 per barrel mark.
In the domestic market, MCX gold futures for June expiry jumped Rs 11,055 or more than 7% to Rs 1,64,497 per 10 grams today. The contracts with August and October expiries also surged more than 6% each.
The move came after Prime Minister Narendra Modi on Sunday urged citizens to reduce purchases of non-essential gold over the next one year. Speaking at Hyderabad’s Secunderabad, Modi said that the move could help reduce the pressure on foreign exchange reserves and imports.
“India continues to remain the world’s second-largest consumer of gold after China, with demand primarily driven by the jewellery industry…Higher duties are expected to reduce precious metal imports, support the rupee, and help narrow the trade deficit,” said Sumit Singhania, Research Head at Bajaj Broking.
Why are gold financier stocks rallying today?
Manappuram Finance, Muthoot Finance and IIFL Finance provide loans with gold as collateral. Rising gold prices will increase the value of the pledged collateral. Since gold loans are sanctioned based on the per-gram valuation of gold, higher prices can allow borrowers to access a higher loan amount without pledging additional jewellery, which in turn boosts demand.IIFL Finance shares rallied nearly 11% to trade at Rs 493.20 apiece on Wednesday, the highest level since the end of February. Notably, the company said it has adequate factual and legal grounds to substantiate its position and does not expect any material impact on its financials or operations after Mumbai’s IT authority sent a tax demand notice for nearly Rs 476 crore.Muthoot Finance shares jumped over 4% while Manappuram Finance shares surged around 5% on Wednesday. “Gold financing firms, including Muthoot Finance and Manappuram Finance, are likely to benefit from higher collateral values of gold loans,” said Sumit Singhania from Bajaj Broking.
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