Jewellery demand likely to remain subdued

Mumbai: The jewellery demand in India is expected to remain subdued in the near term on account of sharp rise in the prices of gold, but could see growth picking up momentum in the medium to long term on the back of improvement in rural demand.

Rating agency ICRA has revised downwards its 2016 gold demand growth estimate to 3 per cent from an earlier projection of 5-6 per cent stating that the steady rise in prices would dent volumes. However, it added that the emphasis on boosting rural economy in the Union Budget 2016-17 is likely to spur rural demand that augurs well for the industry over the next three years.  

The uncertainty in the global markets has pushed the prices of the yellow metal higher in the last few weeks with gold climbing above its key psychological level of $1300 per ounce in the international market. In the domestic market, gold prices are currently trading around '31,000 per 10 gram.

ICRA expects volumes to recover in 2017 (3-4 per cent growth), post the likely stabilization of gold prices at higher levels. In recent years, price volatility has become one of the major demand dampeners in India with sharp price increases resulting in decline in new purchases, and a commensurate increase in the recycling activity.

“In the past, we have seen that, consumers revert to fresh purchases upon stabilization of gold prices, indicating the fundamental strength of jewellery demand in India.

“There have also been periods, where demand has increased in spite of price increases, propelled by consumer’s expectations of further increase in gold prices,” the rating agency observed.

ICRA had recently conducted a survey on demand outlook and various other parameters among leading jewellery retailers. The rating agency believes that the organised retail jewellers, which accounts for 25 per cent of the market share are likely to outperform the broader industry growth given changing consumer preferences favouring branded players. “Implementation of hedging mechanisms and evolution of formal corporate setups are also expected to help organized players navigate through the volatility in the industry, even as the overall regulatory environment continues to evolve with the Government of India (GoI) focused on reducing investment related demand for gold, in its efforts to reduce the import burden,” ICRA added.