India’s jewelry industry is under renewed strain following the recent increase in the country’s gold and silver import duties by the Indian authorities, which has led to a huge selling pressure in the stocks of major jewelry companies such as Titan Company, Kalyan Jewellers, Senco Gold, and Thangamayil Jewellery.
Nevertheless, some top brokerage firms continue to remain optimistic about the future performance of certain jewelry stocks, particularly Titan, thanks to its strong brand position, improved inventories, growth in organized retail operations, and sustained wedding season demand.
Why Jewelry Stocks Are Under Pressure
The recent turmoil on the stock market followed an announcement from India that it would increase the gold and silver import duties to 15% from 6% in an effort to mitigate the pressure on foreign currency reserves and reduce imports amid growing geopolitical concerns.
The increase in the basic duty rate from 5% to 10%, along with the continuing duty of 5% AIDC, led to an overall duty rate of 15%. The move followed the Prime Minister’s appeal to Indians to refrain from buying gold jewelry for a period of one year to come by.
This double impact caused fear and panic amongst jewelry stores.
The stock prices of Kalyan Jewellers fell almost by 6%, with other jewelry brands like Titan, Senco Gold witnessing steep drops too. It is reported that the jewelry industry has lost close to Rs 60,000 crore in market value within just a few trading days.
Impact of the Increase in Duty Rates on the Jewelry Industry
India largely relies on imports to meet its gold needs. Any increase in duty rates directly increases the cost of imported gold. The impact on jewelry companies can be manifold:
Increased gold prices
Decline in demand
Profitability pressure
Cutting down of discretionary expenses
Inventories at risk
However, analysts believe that there may be a short-term reduction in demand, particularly in urban discretionary segments. Consumers might delay making significant gold jewellery purchases if the prices remain high.
On the other hand, industry professionals caution that increased tariffs can lead to informal imports and smuggling, which India has historically experienced in any case where gold taxation has been drastically increased.
Why Do Brokerages Continue Favoring Titan?
In spite of the overall decline in the market, some brokerages are positive about the long-term prospects of Titan.
As per reports, Nomura continues to rate Titan as “Buy” with a target price of Rs 4,950, signifying potential upside of around 21%.
According to Nomura, Titan stands to benefit from various structural advantages:
1. Inventory Benefit
The first thing that works in favor of Titan is its current low-cost inventory.
Given that the firm already owns gold inventory procured at a low duty rate, its replacement cost increases post-duty increase. Reports suggest that Nomura estimates an inventory gain of over Rs 500 crore for Titan.
2. Established Brand Trust
In times of uncertainty, consumers always gravitate towards organized and reputable jewelry brands. With its established network of Tanishq, Titan has a clear edge over local unorganized jewelers.
3. Strong Weddings’ Demand
Despite high gold prices, India’s wedding economy will support jewellery demand. Wedding season and festivals have always made gold jewellery highly demanded.
According to brokerages, although short-term buying might cool down, there will be no disappearance of structural demand in the long run. 4. Advantage of Organized Sector Larger players in the jewellery business have an edge when it comes to procurement abilities, inventory management, financing options, and better pricing.
It could hasten the migration process of jewelry retail from the unorganized sector to organized.
What About Kalyan Jewellers?
Kalyan Jewellers has also gained significance amid the correction period. Despite witnessing corrections in their stock prices because of the uncertainty associated with discretionary spend, they see a promising future for the firm.
With the expansion plans across India and abroad, the company is well-positioned to tap into the country’s jewellery consumption story.
However, in comparison to Titan, Kalyan Jewellers could see increased volatility in the coming periods due to its high margin sensitivity and valuation.
Yet, some see this correction as an ideal buy opportunity for quality jewelry stocks.
Volatility in Market Sentiment Will Persist
It is expected that jewellery stocks will be volatile in the coming few weeks depending on:
1. Consumer demand patterns
2. Movement in gold prices
3. International geopolitical situation
4. Rupee value
5. Import data
6. Demand during upcoming festive season
Further increase in gold prices internationally would put extra stress on both jewellers and consumers.
On the other hand, any stabilization in gold prices along with improvement in consumer sentiment will lead to a quicker recovery for branded jewellery firms.
Should You Be Worried?
This correction represents short-term uncertainties, not the failure of the entire jewellery business model.
India has seen several instances where its gold demand has proven resilient amid various macroeconomic challenges, policy shifts, and surges in prices. Consumers might delay their purchases, but their ultimate demand for gold remains strong.
The following are the key factors recommended by analysts for investment purposes:
Strong Balance Sheets
Branded Products
Strong Retail Network
Better Inventory Management
Profit Margins
This explains why brokerages still prefer Titan stocks over other smaller jewellery companies.
Conclusion
Presently, the Indian jewellery industry faces one of the most challenging times after the rise in gold duty imports, with declining consumer demand. The share prices of Titan Jewellery and Kalyan Jewellers, in particular, have been heavily battered by increasing cost pressures and poor investor sentiment.
Despite this challenging period, the future for organised jewelries in the country seems optimistic because of the positive prospects held by Titan. This is based on the assumption that their strong inventory control measures, brand strength, and industry leadership will allow them to thrive in the coming period.
However, as volatility continues for the near future, the strong cultural preference of gold in the Indian economy makes sure that jewelry remains an important consumer category. The question is whether this will be a corrective stage or an extended phase for jewellery companies.
