Relief for jewellery stocks ends early

Rose on latest duty protection from imports but retailers soon made it clear the benefit would be small

Jewellery stocks soon ended their brief rise, as retailers were quick to clarify that the Centre’s move to raise import duties would only have a limited benefit on item makers in the country.

The government announced a rise in gold jewellery imports on Tuesday for the second time in two months and the third time this year; its aims to curb a rise in cheaper jewellery import, especially from Southeast Asia.

Importers of gold jewellery would now have to pay record a 15 per cent as duty, up from 10 per cent in August, making the purchase of jewellery in Indian stores a cheaper alternative. The move appeared to alleviate some pressure from jewellery stocks, stressed from the Reserve Bank of India’s directive in August on not only an upfront cash payment for gold import but also that a fifth of this be set aside for re-export.

Investors cheered jewellery stocks in early trade, sending gains as high as seven per cent Wednesday but pared most of these by the end of the day as retailers did not display similar enthusiasm.  

<B>Why?</B><BR>
While jewellery retailers have welcomed the move, they say it will only have marginal benefit for their stock. The share of jewellery import into the country is miniscule but trends in the past month have indicated an increased appetite for gold jewellery, especially from Thailand and Malaysia, where it is cheaper. Import of jewellery items came at the same cost as raw gold but did not carry the additional baggage of 20 per cent earmarked for export.

The real problem is the difficulty in procuring raw material for manufacturing jewellery in a country showing insatiable appetite for gold. Total gold import dropped to $650 million in August from $2.2 billion in July.

“(Raw) Gold imports have dropped drastically. But in such cases, smuggling of gold increases and then the legal market suffers a major crunch, as it has to deal with price increases and this affects the sale of gold jewellery because price hikes have to be passed on,” a Gitanjali Jewellers official said. “More important, imports have to pick up. If there is no gold, what would manufacturers make?”

Rajesh Mehta, chairman of Rajesh Exports, said: “The percentage of gold jewellery imported does not comprise a very significant number. But that does not mean this is a bad move. It would surely benefit manufacturers of gold jewellery in India. The impact might be small but would help.”

<B>Backdrop</B><BR>
India, the world’s largest consumer of bullion, thrives on the sale of manufactured gold jewellery. It has so far managed to successfully pass on additional duties and high making charges, as consumers throng jewellery stores, especially during the (coming) festive season and wedding season.

The  government said the decision was “to protect the interests of small artisans” in India, who have been losing to cheaper foreign import. It is also the latest in a slew of measures to check the wide current account deficit in international trade. Most jewellers also sell diamond jewellery but sale of the latter was flat or had declined in the past quarter. Titan, for one, saw the share from its studded range drop to a record low of 16 per cent of total sales and has since been running various discounts to lure customers to its Mia range of diamond jewellery.

Gitanjali also said share of diamond sales were taking a hit as consumers were beginning to cut on discretionary spending.

Tribhovandas Bhimji Zaveri Ltd’s stock closed at Rs 138.30, up three per cent after rising as much as five per cent earlier in the day. Shree Ganesh Jewellery House shares pared most of its gains to close at Rs 58.65 on the BSE. Gitanjali Gems, which rose as much as four per cent in early trade, closed down 1.5 per cent at Rs 67.25 a share. Titan, operator of Tanishq, closed at Rs 222.90, losing almost all its gains during trading on the BSE. Shares of PC Jeweller, which climbed as much as seven per cent in early trade, held on to most of its gains and closed at Rs 90.70 a share, up 4.5 per cent. CRISIL Research said the company’s fundamentals were ‘good’, relative to other listed equity securities.