Explained: Why IIFL Finance shares surged 13% today

IIFL Finance stock climbed to a high of Rs 560.60, marking its peak since late February, before settling to trade 9.31% higher as of 2:06 pm.

In Short

• IIFL Finance shares gain sharply after RBI lifts gold loan ban
• In March, RBI ordered IIFL Finance to cease gold loan disbursements
• Gold loans constituted 21% of IIFL's total loan assets as of June 30

Shares of IIFL Finance gained as much as 13% on Friday following the Reserve Bank of India's (RBI) decision to revoke a previous ban on the non-bank lender's gold loan business.

The stock climbed to a high of Rs 560.60, marking its peak since late February, before settling to trade 9.31% higher as of 2:06 pm.

The sharp rise comes after the shares had fallen approximately 14% prior to the RBI's announcement.

In March, the RBI had ordered IIFL Finance to cease gold loan disbursements due to "material supervisory concerns."

In response, the company initiated a special audit in April as mandated by the central bank.

Analysts at Motilal Oswal expressed optimism about IIFL's recovery, stating, "We expect IIFL to make a strong comeback in the gold lending business to regain market share." They also suggested that the company might adopt competitive pricing strategies to accelerate its growth in gold loans.

For the quarter ending June 30, IIFL reported a net loss of Rs 22.66 crore, a significant decline from a profit of Rs 151 crore in the same period last year, largely due to the RBI's restrictions.

Gold loans constituted 21% of IIFL's total loan assets as of June 30, down from 30% at the end of March.

In contrast, shares of competitors Muthoot Finance and Manappuram Finance fell 3% and about 4%, respectively, before stabilising.

Kranthi Bathini, director of equity strategy at WealthMills Securities, reassured investors, noting that IIFL Finance has implemented corrective measures and is focused on enhancing compliance.

He said, "With the restrictions lifted, the company is expected to take about 6-8 months to recover, supported by rising gold prices, which could benefit the stock."

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