Jewellery 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 jewellery stocks poorer by a fourth of their investment in three weeks.
The government’s decision to eradicate black money from the system through demonetisation of high denomination currency notes has hit the jewellery 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 jewellery sales since November 8. Total business is paralysed because of demonetisation,” said G V Sreedhar, Chairman, All India Gems and Jewellery Trade Federation (GJF).
Meanwhile, trade sources said jewellery sales in cash cannot be denied with proper know-your-customer (KYC). Every transaction in cash cannot be termed illegal, they added.
“Gold demand has dried up. Bullion and jewellery sale without cash is impossible. Because of weak jewellery demand, jewellers are not buying bullion from official dealers also. For the next two months, gold and jewellery 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 demonetisation is expected to have a near-term negative impact on retail gold jewellery sales in India. On the retail jewellery business, we expect this to have an impact on jewellers as around 50 per cent of jewellery 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 demonetisation is unlikely to affect export-centric jewellery businesses. Rajesh Exports which derives over 90 per cent of sales through exports, is likely to remain unaffected by the currency demonetisation 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 jewellery 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 gold 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, gold shed five per cent since November 8 to close on Friday at Rs 28,855 per 10g. Traders, however, forecast gold to remain volatile in the near term, with a downward bias after the interest rate call by the US Fed early December.