What's changed for investors

The Indian gems and jewellery sector has had a dream run in 2010, with recovering exports and rising domestic consumption. What were the trends that emerged during the year?

Gold consumption held up as consumers adjusted to higher prices. Volatile equity markets reinforced gold's status as an investment haven. Consumers in rural areas and small towns continue to rely on gold as an investment, with wedding and festival seasons being a period of maximum sales.

Diamond demand has picked up as consumer confidence rises on healthy economic growth. Promotion campaigns and introduction of low-value designs helped tap demand from the younger working population. Demand generally tends towards smaller-value diamonds of less than 0.3 carats.

Jewellers have moved up the value chain by launching exclusive owned brands and raising funds to expand network of own stores to retail these brands. Regional brands are charting plans of exploring new territories.

Fund-raising activity was robust in capital markets with four jewellers raising over Rs 700 crore through Initial Public Offers for expanding manufacturing capacities and retail chain expansion. Three more are currently in the pipeline.

Listed gems and jewellery players posted an average growth of 28 per cent in revenues and 68 per cent growth in net profits for the nine months ending December 2010 compared to the same period in 2009. The slim operating and net margins that jewellers work with staged an improvement of 1 percentage point to 5 and 3 per cent respectively. Lower interest costs compared to the higher growth in revenues aided margin improvement.

Export growth so far has been healthy in terms of value, rather than volumes. For the April-December 2010 period, in volume terms, exports have increased 11 per cent, against an 18 per cent increase in the same period in 2009. In value terms, growth was 35 per cent and 11 per cent for the same periods.

The US remained the largest export market for Indian jewellers. Consumer confidence in the US is up, on the back of economic recovery, evidenced by good Christmas and New Year sales. Sales during the Valentine's period will help assess sustainability of demand. The UAE is the largest export market for gold jewellery.

Rough diamond prices, the inputs for jewellers, have surpassed pre-recession levels. Prices have almost doubled from the lows of 2008. New mines coming up are few, and mining activity is fairly slow. High prices of rough, therefore, will continue this year as well.