Stressed gold retailers’ business will shine after budget – India Ratings

Indian gold jewellery retailers will get a fillip to their trade over the long term following a reduction in customs duty  on gold and silver in the budget, according to India Ratings and Research.

The revenues for top gold retail jewellery players had declined by as much as 32% year-on-year in the first half of the financial year ending March 31, following a sharp rise in gold prices.

There was a strong recovery in the third quarter of the current fiscal year following a 10% decline in prices from all-time highs seen in early August. That period coincided with the peak festival buying season.

The hopes of a covid vaccine has further improved the market sentiment. Gold imports, which had dropped to a decade’s low in 2020, have seen a pick up during the fourth quarter of the current fiscal year.

Noting that the Indian wedding season extends from November to February and April-May, India Ratings said that the reduction in customs duty “will improve business volume as IG makes gold jewelry more affordable and (will) further unlock pent up demand.”

However, many jewellers had replenished their gold jewellery stocks at relatively high prices of INR5,000 per gram. Subsequently, gold prices have fallen by INR120/gram following the reduction in the budget.

“This may lead to temporary inventory losses for the jewellers with unhedged inventory in their books. However, it could be compensated by gains in volume terms, ” the report adds.

It adds that the reduction in customs duty will bring comfort to many organised jewellers as it will reduce competition from illegal trade.
India Ratings estimated the volume of unofficial gold imports at 150-180 tons annually compared to official imports of 600-700 tons in the financial year ended March 2020.

Still, gold prices on average will remain 15%-20% higher year-on-year by end March 2021.

The ratings agency also welcomed the government’s move to announce that the Securities and Exchange Board of India (SEBI) will be notified as the regulator for the gold bullion exchange.”This will further provide impetus to the sector’s formalisation process and make it more organised,” said India Ratings.

The budget’s move to raise the import duty on imported cut and polished cubic zirconia and synthetic cut and polished stones to 15% from 7.5% will also help the local gems and jewellery industry, it added.

“This could aid local manufacturing of these items by making jewellery manufacturing more competitive. Unlike growth in the exports of cut and polished diamonds, the exports for gold jewellery have remained muted due to poor perception for Indian gold jewellery and a higher duty structure,” the report added.

“There is substantial untapped potential for the export of gold jewellery from India,” said India Ratings.

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