Regaining lustre: Diamond exports to touch $15b this fiscal on pent up demand

The recent upsurge in spending on diamonds, riding on a combination of pent-up demand and recovery in retail offtake in key markets such as the US and China, is expected to help India’s diamond industry close this fiscal with revenue of over $15 billion.

The cut and polished diamond exports last fiscal declined by 22 per cent to $18.66 billion compared to $24 billion in the previous year.

Positive trend

Sluggish demand and extended lockdowns globally saw exports plunge to $5.5 billion in the first half of this fiscal, almost halving year-on-year. However, in the third quarter, exports have risen to an estimated monthly average of $1.6 billion, setting the industry up for a tryst with the $15-billion mark for the full year.

After the Covid pandemic outbreak, the industry was expected to see a third shaved off its top-line this fiscal. Now, this could get arrested at about 20 per cent.

Also read: Gem & Jewellery exports in Dec grows 6.3% to $2.49 billion

Subodh Rai, Chief Ratings Officer, Crisil Ratings, said trends in recent months have been encouraging. Retail sales in the US and China have grown by about 3-5 per cent which would provide the industry sustained momentum over the medium term.

While there are new lockdowns in some parts of EU, the launch of Covid vaccines across the globe is expected to mitigate a massive disruption hereon, he said.

At the start of the fiscal, the industry was grappling with significant build-up of inventory — comprising both roughs and polished diamonds — over the previous seven months.

Mixed price trend

While prices of roughs had remained firm, weak demand meant the prices of polished diamonds were falling, thus setting the industry up for significant inventory losses. Amid the weak demand scenario, however, the miners reduced the prices of roughs by almost 10 per cent around the end of the second quarter. With demand also on the rise gradually, the prices of polished diamonds increased by almost 2 per cent in the December quarter. This helped the industry wipe out a portion of the operating losses of the first half.

Also read: Battered by Covid, diamond industry set to sparkle in 2021

With prices now stabilising, operating profitability is expected to remain intact for the full year.

Rahul Guha, Director, Crisil Ratings said the average receivables and inventory period has been reduced to over 2 and 5 months against well over 3 and 7 months, respectively, at the end of the first quarter.

Intermittent liquidity challenges have been supported by timely extension of due dates on post-shipment credit by Indian banks.

The industry’s approach to structurally correct its working capital cycles on a sustained basis will, however, remain a key monitorable.