2023, so far, has been mixed for gems and jewellery stocks with the budget not providing the expected boost. While industry leader Titan Industries, Vaibhav Global and Kalyan Jewellers have managed to stay flattish to positive since budget day , other jewellery manufacturers saw their stock prices tumble anywhere around 5 to 55 per cent. PC Jeweller was the worst performer, with the stock shedding over 50 per cent since January 31. Amidst expectation of dazzle post-budget, in contrast, several jewellery stocks have actually fizzled out, after the initial rally on budget day.

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Goldiam International, among the leading listed manufacturers of lab-grown diamonds (LGD) after hitting a 52-week high on budget day, gave up all its gains. The stock has shed over 7 per cent from budget day, despite the budget move bringing cheer to the company by way of removal of customs on LGD seeds (from the earlier 5 per cent). Rajesh Exports, which is into mining, manufacturing, wholesale, and retail sale of jewellery also saw its stock price fall by 18 per cent.

The underperformance of gems and jewellery stocks can be attributed to reasons below.

First, some of the budget moves such as the higher customs duty on silver dore, articles at 10 per cent versus 6.1 per cent and 7.5 per cent respectively, will not help jewellery makers. Given that the higher customs duty will mean a higher selling price as it is passed on to customers, this may have a negative impact on the demand.

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Also, the increase in duty for imported precious metal jewellery – silver and platinum- at 25 per cent will not only make it pricey for consumers but will also hurt demand and business for jewellery companies.

Second, a strong gold price with the expectation of recessionary pressure in 2023, though can help jewellery makers by way of higher sales and margin improvement due to inventory gain, an adverse impact on sales volume cannot be ruled out. Hence, the impact of higher gold prices on demand, this time, given the recessionary concerns globally, remains to be seen.  

Lab grown diamond

The only saving grace for jewellers is the reduction in customs duty on lab-grown diamond (LGD) seeds from 5 per cent to zero, which will provide a boost to LGD makers in India. Lab-grown diamonds are the most viable option to meet the growing demand for diamonds in India. In 2021, India was the world’s largest importer in value terms with a total import value of $26.3 billion, accounting for almost 24 per cent of the global trade. Of this, about a half is consumed locally, while the balance is exported after value addition (cutting and polishing).  

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Diamond mining in India has declined in recent years: from over 38,000 carats (₹398 mn) in 2020, the production slipped to 28,000 carats (₹220 mn) in 2021, due to the Covid pandemic. Given the strong demand for diamonds, the balance has been bridged by imports. The government’s move to make LGD seeds duty free will benefit players in the listed space such as Goldiam International, which derives a fourth of its revenue from LGD.

Growth triggers

The All India Gems and Jewellery Domestic Council (GJC) has made representation to the Finance Minister, during the post-budget interaction. According to Saiyam Mehra, Chairman GJC, among the various aspects detailed by the GJC for favourable consideration by the Finance Ministry, key ones include, increasing the cash purchase threshold from the current ₹2 lakh, for quoting PAN number.

Allowing EMI (equated monthly instalment) scheme for gold jewellery purchases, expanding the gold monetisation scheme to more households by lowering the minimum gold threshold and also reduction of capital gains tax on inventory held by jewellery makers.

Should the Government consider these suggestions favourably, particularly, the EMI scheme, it can provide a boost to the jewellery demand and compensate for expected slack due to higher prices. The move, if materialises, can have a positive rub-off on all jewellery stocks.   

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