Jewellery stocks recover after initial shock

Suresh P. Iyengar | | Updated on: Jul 01, 2022

Analysts expect companies to see short-term benefit on inventory

Most of the jewellery company stocks turned nervous after the government increased import duty on gold from 7.5 per cent to 12.5 per cent to support the fast-depreciating rupee against dollar. The government decision will increase the import duty on gold to 15 per cent including the agriculture infrastructure development cess of 2.5 per cent.

While most stocks plunged soon after the announcement was made by the Finance Ministry on Friday, they recovered after analysts predicted short-term gain from gold jewellery inventory held by these companies.

‘Minimum impact’

The stock of Titan Company, which opened on a weak note at ₹1,904 against the previous close of ₹1,942, plunged to a low of ₹1,827 before closing with a gain of 0.19 per cent at ₹1,946. Similarly, Thangamayil Jewellery opened at ₹972 and dipped to a low of ₹947 and closed at ₹972, while Rajesh Exports closed with a loss of 0.44 per cent at ₹622, after hitting a low of ₹614.95.

VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said higher import duties have always been followed by rising smuggling, but in this context of rising demand for gold and widening current account deficit threatening to breach the 3 per cent of GDP level, the government does not have any other option.

After the clampdown through GST investigation, illegal jewellery business is becoming increasingly difficult and the listed jewellery companies are unlikely to be impacted significantly.

The rise in import duty comes on the backdrop of a possible ban on gold imports from Russia by G7 countries. This may lead to higher gold imports at discount into India from Russia.

Gold imports rise

The sharp increase in gold imports in the last few months amid the rising inflation trend has been worrying the government. Gold imports zoomed to $6 billion in May against $1.7 billion logged in April. Gold prices in the international markets had dropped to $1,845 an ounce from $1,935 in April, which led to sharp increase in imports. However, in rupee term, gold prices were holding high due to steady rupee depreciation against the dollar.

Gold jewellery exports in May increased 42 per cent to $681 million (₹5,273 crore) against $480 million (₹3,513 crore) logged in the same period last year. Similarly, in the first two months of this fiscal, gold jewellery exports jumped 22 per cent to $1.42 billion (₹10,898 crore) against $1.16 billion (₹8,573 crore) in the previous year.

Published on July 01, 2022
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