Jewellery sales likely to dip

India's jewellery sector is estimated to record around 3% of growth in value this calendar year

The jewellery sector in India is expected to witness a sharp decline in sales this calendar year, as a result of measures implemented by the Centre to discourage consumers’ inclination towards investing in the yellow metal.

Data compiled by ratings agency Icra estimated India’s jewellery sector to record around three per cent of growth in value this calendar year, a sharp decline from its earlier forecast of five-six per cent. Icra attributed this to the steady rise in gold prices.

Gold prices have risen 24 per cent to trade currently at Rs 30,880 per 10 grammes. With analysts forecasting a further 15-18 per cent rise in prices, expected to reach $1,500 an ounce in international markets, consumers are expected to lower purchases this year.
 

However, overall volumes are likely to be buffered to an extent by improvement in rural demand (on the back of a good monsoon), renewed expansion of organised players and higher-than-expected recycling of gold (with rising prices).

“The government has taken several measures in the past few months to discourage consumers’ attraction towards gold. It has made permanent account number (PAN) mandatory for jewellery purchase of Rs 5 lakh and above and bullion purchase worth Rs 2 lakh and above. Also excise duty was implemented this year. These would have a negative impact on sales. The industry may not witness any growth in sales volume this year,” said Prithviraj Kothari, managing director, RiddiSiddhi Bullions.

By contrast, emphasis on boosting the rural economy in the Union Budget 2016-17 is also likely to spur demand, which could augur well for the industry over the next three years. Organised retailers (around 25 per cent of the market) are expected to record volumes higher than that of the sector, given consumer preferences favoring branded players and improved financing environment which would support capital requirements to pursue expansion.

Implementation of hedging mechanisms and evolution of formal corporate set-ups are also expected to help organised players navigate through the volatility in the sector, even as the overall regulatory environment continues to evolve with the Centre focusing on reducing investment related demand for gold, in its efforts to reduce the import burden.

The study expects volumes to recover in CY2017 (3-4 per cent growth), after the likely stabilisation of gold prices at higher levels. In recent years, price volatility has been a major dampener on demand, with sharp price increases resulting in declining new purchases, and a commensurate increase in recycling (exchange buying). However, historically, consumers revert to fresh purchases when prices stabilise.

Kothari said old ornaments have started coming into the market in a big way, which may increase India’s gold availability from secondary sources, ie recycling, by 30 per cent.