Jewellery stocks down on fears of liquidity crunch

While Shree Ganesh Jewellery House shed 6.53% at close on July 14, Rajesh Exports plunged 5.68%

Jewellery stocks fell up to 6.5 per cent on Monday on profit-booking amid fear of a liquidity crunch in the sector due to the withdrawal of gold deposit schemes.

While the share price of Shree Ganesh Jewellery House fell by 6.5 per cent to close at Rs 33  apiece, Rajesh Exports plunged six per cent to Rs 154.5 apiece on Monday.

Till now, jewellers were offering returns as high as 18 per cent for two years under gold deposit schemes. The returns were higher for a larger tenure.

But the recently introduced new Companies Act limits the returns to 12 per cent. Many jewellers offering higher returns will have to discontinue the schemes. The Act also restricts the total amount of deposits to 25 per cent of their net worth.

Tanishq, the market leader in the diamond jewellery segment, withdrew its gold deposit schemes. Tanishq, according to sources, was collecting Rs 1,000 crore from customers annually under the schemes.

These funds were used by jewellers as working capital. With the Act in place, jewellers will face a working capital squeeze, said an official employed with a company.

The Act treats funds generated through gold accumulation schemes as public deposits.

“Now, there will a short term boost in jewellery sales followed by a lull period,” he added.

On sudden redemption on public deposits, there will be an outgo of massive fund which may create a liquidity squeeze for a short term, he quipped.