Jewellery shares fall on fear of gold import curbs; Titan down 4.73%

Most jewellery stocks have headed south in the last one month. However, the fall gained momentum in the last one week after the Centre announced measures to arrest rupee slide and decided to curb import of non-essential goods. Jewellers were alarmed by this move and expect some restrictions on gold trade.

In the last one week after the government announced restrictions to arrest the rupee slide, jewellery stocks fell by around 5 to 12 per cent. 

Among big domestic jewellery companies, Titan was least affected and fell 4.73 per cent only due to better fundamentals then competitors. Fall in jewellery companies' share prices in the last one month is from 12 to 24 per cent. However, CLSA, a leading Asia's leading institutional investor, said on Friday that, "the current scenario is like a 'déjà vu moment' for the jewellery business." The comment was made in a report where the CLSA advised 'sell' on Titan.

The report said that, "The recent rupee depreciation has prompted the government to hint at a stricter import regime. Even if the government does not take specific action to curb gold imports in the near term, the overhang would still remain as action could be staggered." CLSA has compared the current scenario with 2013 when the rupee was falling, oil prices were rising and general elections were due. Since then, gold was the second biggest contributor to the import bill and drastic restrictions were announced. 

Ahead of that, the Titan stock had fallen 35 per cent. The institution says this time, too, gold is among the top three contributors to the import bill. However, it did mention in the report that the situation this time is not as grave as in 2013.

While talking about Titan, the report acknowledged that its better competitive position and gold exchange plans are safeguards but the risk is from its premium valuation.

The jewellery industry, however, feels once the measures are known, uncertainty will go and in the scenario after that, big players will be beneficiaries while it would be the smaller jewellers who would bear the brunt. 

A veteran jeweller said that there is buzz that import duty on gold could rise, bringing back PMLA provisions for jewellers which were withdrawn ahead of last year's Diwali. 

However, "In that case, organised players will be better placed to gain business, compared to smaller players," the veteran jeweller added.

Another worry for all jewellers is the tightening liquidity scenario and in case of more restrictions, their credit facilities will see a further squeeze. 

However, observers said that if import duty rises or import restrictions are implemented, then valuation of their existing stock will go up. In case of import curbs, gold premium will increase.