Higher gold prices, tightened credit to pull down growth in India’s 2018 jewellery demand – ICRA

The jewellery demand growth in India is expected to weaken by 2-4% for calendar year 2018, owing to higher gold prices, and subdued financing environment, ratings agency ICRA said.

The industry continues to remain susceptible to the regulatory risks, which has affected both demand and supply, it said in a statement.

ICRA, however, has estimated growth in value terms during the year at 5-7%. Over the medium to long term, ICRA expects the gold jewellery retail industry to record a 6-7% volume growth, supported by stable rural and wedding demand, cultural affinity for gold, rising disposable income, and favourable demographic profile.

Significantly, post demonetisation and GST, there has been a marked shift from unorganized to organized trade, ICRA observed.

“Gold prices have increased steadily in the last three months, which coupled with lesser number of auspicious days, impacted jewellery demand. Also, financing to the gems and jewellery sector has been under increased scrutiny in the recent months following reporting of fraud by few lenders on their exposures to the sector, said .

 With enhanced due diligence and checks on credit quality and inventory quality, lenders are more cautious on the sector. We expect the tightened credit availability to affect the working capital position of jewellery retailers, especially the unorganized ones, he added.

In contrast, gold jewellery demand for 2017 grew by 12% (volumes) and 9% (value) amidst headwinds in the form of higher tax rates, inclusion of jewellery sector under the ambit of Prevention of Money Laundering Act albeit for a brief period, and continued preference for other asset classes due to better returns, ICRA said.

The growth was supported by factors like pent-up demand on the back of favourable gold prices, pre-buying ahead of GST rollout, extended wedding season and strong rural demand with good crop output, it added.

ICRA’s sample of nine major organized retailers showed that revenues of the domestic gold jewellery industry is estimated to have grown by ~12% during FY2018 following a 9.6% growth in FY2017.

This was largely supported by recovery in demand post demonetisation, stable demand from both rural and urban segments, lower gold prices and regulatory measures supporting organized trade, ICRA pointed out.

ICRA said it expects the industry revenues to grow by 8-9% in FY2019 supported by stable wedding/festive demand.

“The growth is seen declining compared to FY2018 with elevated gold prices and supply side concerns amidst cautious lending environment. Over the medium to long-term, the industry revenues are likely to settle at 7-8% growth led by socio-economic and cultural factors that are unique to the Indian market,” ICRA said.

 

 

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