Sky-high gold destroys retail demand in top consumer India


Everybody and their aunt are punting on gold during the pandemic, but none want to go to jewellery shops.

This paradox is crushing the retail business in top consumer India, where traditionally the bulk of gold demand comes from jewellery.

However, gold’s meteoric rise to record high prices and a nationwide lockdown to check the pandemic have dampened the jewellery demand.

Sales volumes of gold jewellery retailers are expected to fall by 35%-40% on year in 2020, which will be the steepest drop in a decade, according to ratings agency CRISIL, an S&P global company.

Overall revenue would drop an average 20-25% this fiscal year. 

In comparison, the drop in profitability will be only 100-150 basis points to 4 w-4.7% due to lower fixed costs and cost cuts including fewer employees, lower rentals and little expense on promotions.

However, cash accruals are expected to drop by 40% on year, while capital investments will be 70& lower than last year at Rs 650-700 crores.

“The dent in cash accrual will be material given the fall in absolute profit because of the sharp decline in revenue,” says Mohit Makhija, director at CRISIL Ratings.That together with increased inventories due to lower sales volumes are impinging on credit metrics of jewellers, he says.

CRISIL says its outlook on the the entire jewellery retail sector is moderately negative.

Banks lending to jewellery retail sector declined 17% over the 12 months through July, even as gross bank credit rose 7%. They are turning cautious about renewing loans and increasing their credit limit to the sector.

Recovery in gold retail demand is expected to be gradual starting with the ongoing festival season. But a postponement of weddings due to the pandemic is impinging on even this demand.

Wedding jewellery demand usually accounts for 55%-60% of demand during India’s peak gold buying season, which typically starts from early September and runs through to around end of the year. 

However, this pent up demand will manifest later, likely in a much stronger fashion as expenses on holding banquets may drop due to social distancing requirements.

“We believe retailers will focus more on consolidating operations of stores in tier 1 cities, where the ticket sizes are much bigger than tier 2 and 3 cities,” says Gautam Shahi, director at CRISIL Ratings

Biman Mukherji is a columnist and consulting editor at He has worked for international news organisations such as Reuters, The Wall Street Journal as well as for newspapers like The Times of India. He can be reached at

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