Here's why shares of Manappuram, Muthoot Finance may have surged on Tuesday

Shares of Gold Financiers Manappuram Finance Ltd. and Muthoot Finance Ltd. gained as much as 8% and 14% respectively on Tuesday.

On an intraday basis, this was the biggest single-day gain for Manappuram Finance since September 2020, Muthoot's shares rose the most since June 2020. Muthoot Finance has also gained for the fifth day in a row.

Both the gold financing companies may be reacting to the developments taking place at IIFL Finance.

On Monday, the Reserve Bank of India had instructed IIFL Finance to stop disbursing gold loans after it observed some material supervisory concerns in the company's gold loan portfolio, including serious deviations in assaying and certifying purity and net weight of the gold at the time of sanction of loans and at the time of auction upon default.

In response, the company said that the near-term impact on the profitability will not be significant post the order. However, the stock is down in a 20% lower circuit in response to these developments. You can read more on that here.

Both Manappuram and Muthoot traded on the back of strong volumes in today's session. While 74 lakh shares of Muthoot were traded on Tuesday far compared to its 20-day average of 5.6 lakh shares, 4.62 crore Manappuram shares were traded compared to their 20-day average of 78.3 lakh shares.

"As far as other gold finance companies are concerned we think that both Muthoot Finance and Manappuram Finance - the numbers were not so encouraging. There are always grey areas when it comes to numbers and quality. So for the time being, we would avoid this space," Hemang Jani, Market Expert, told CNBC-TV18.

After the early surge, both Manappuram and Muthoot Finance shares are off the day's high. Muthoot Finance currently trades 5% higher, while Manappuram trades with gains of 4.6% at ₹192.45. While Manappuram has risen over 70% during the last 12 months, Muthoot shares have gained close to 50%.