Demonetisation pulls down jewellery stocks by a fourth

stocks lost up to a fourth of its value since the government demonetised 500- and 1,000-rupee currency notes three weeks ago. The fall is because of a sharp decline in sales volume and expectations of a grim future in the near to medium term.


New Delhi-based PC Jewellers Ltd reported a 24.99 per cent decline in its share price since Prime Minister Narendra Modi’s decision on November 8. The stock closed at Rs 360.45 on Friday from Rs 480.55 on November 8. The government’s surprise move made investors of stocks poorer by a fourth of their investment in three weeks.


The government’s decision to eradicate black money from the system through of high denomination currency notes has hit the business hard, with cash dealings evaporating from the system. Jewellers believe that cash dealings are necessary for the purchase of precious ornaments as women in rural and semi-urban India buy ornaments through smart savings from their kitchen expenses, which would not be possible through other means of savings.


“Depleting cash availability from the system has created a liquidity problem resulting in an 80-90 per cent decline in sales since November 8. Total business is paralysed because of demonetisation,” said G V Sreedhar, Chairman, All India Gems and Trade Federation (GJF).


Meanwhile, trade sources said sales in cash cannot be denied with proper know-your-customer (KYC). Every transaction in cash cannot be termed illegal, they added.


demand has dried up. and sale without cash is impossible. Because of weak demand, jewellers are not buying from official dealers also. For the next two months, and sales are likely to remain lacklustre until liquidity is normalised,” said Prithviraj Kothari, Managing Director, RiddiSiddhi Bullions Ltd.


“The government crackdown on black money and corruption through is expected to have a near-term negative impact on retail sales in India. On the retail business, we expect this to have an impact on jewellers as around 50 per cent of sales in India are through cash transactions. However, we believe the impact will only be short-term and that sales will start recovering once the new notes are in circulation,” said Ajeya Patil, Analyst, Evaluate Research.


Meanwhile, the is unlikely to affect export-centric businesses. Rajesh Exports which derives over 90 per cent of sales through exports, is likely to remain unaffected by the currency scheme.


Rajesh Mehta, founder and executive chairman of Rajesh Exports, says he expects to see some volatility until the new currency notes come into circulation and anticipate a marginal decline in retail sales over the next one month. C Vinod Hayagriv, managing director of Bangalore-based heritage jeweller C Krishniah Chetty & Sons remains more pessimistic and expects to see a 15 per cent decline in sales over the next six months.


International was down about 13 per cent from a high of $1,365 per ounce in July, to $1,188 an ounce on Saturday. Most of this came in the aftermath of the US presidential polls, as investors tried to assess the impact of a Trump presidency. In rupee terms, however, shed five per cent since November 8 to close on Friday at Rs 28,855 per 10g. Traders, however, forecast to remain volatile in the near term, with a downward bias after the interest rate call by the US Fed early December.