Shares of Muthoot Finance gained 3 per cent and hit a new high of Rs 995 on the BSE on Thursday in an otherwise range-bound market. The gold finance company's stock was trading higher for the third straight day and has surpassed its previous high of Rs 954, touched on February 25, 2020.

In the past week, Muthoot Finance has outperformed the market by surging 9 per cent as compared to 0.45 per cent rise in the S&P BSE Sensex. It zoomed 109 per cent from its 52-week low of Rs 477, touched March 24, 2020.

However, the company's share price almost halved between February 25 and March 24, on increased macro-economic challenges for the Indian non-bank financial institution (NBFI) sector.

Muthoot Finance is the market leader in gold-backed loans, maintains very high capitalization and earnings capacity, and holds gold as collateral for most of its loans.

On March 27, Fitch Ratings had downgraded the Long-Term Issuer Default Ratings (IDRs) of Muthoot Finance to 'BB' from 'BB+'. The downgrade and rating watch negative (RWN) reflect the weakening operating environment and the related operational challenges. Slower economic activity will dampen Muthoot Finance’s business growth prospects, while its branch-led distribution model for gold-backed loans, which form 89 per cent of the company's total loans, will be affected by disruptions from measures to contain the pandemic, the rating agency had said.

However, Fitch Ratings further said that Muthoot Finance’s ratings nonetheless remain at the higher end of rated peers, reflecting the strength of its established franchise in niche gold-backed financing, its history of low credit losses, satisfactory leverage and adequate liquidity coverage. These are counterbalanced by high exposure to operational risks in the business and the company’s concentration in gold loans, it said.

Meanwhile, since May 22, the stock has rallied 25 per cent in 14 trading sessions, after the Reserve Bank of India (RBI) reduced repo rate by 40 basis points from 4.4 per cent to 4 per cent.

“The RBI announcement to cut the repo rate by 40 bps will infuse liquidity into the system in such challenging times. Also, the reduction in reverse repo rates will discourage banks to park idle money with RBI and lend further,” George Alexander Muthoot, MD, Muthoot Finance had said post the RBI announcements.

The decision of extending the moratorium by three months will help in reducing the repayment pressure and provide necessary time to analyze the cash flow status, he said.

At 11:17 am, Muthoot Finance was trading 1.5 per cent higher at Rs 983 on the BSE, against 1.1 per cent decline in the S&P BSE Sensex. The trading volumes on the counter jumped 1.5 times with a combined 1.8 million equity shares changing hands on the NSE and BSE, so far.