Personal Finance

Gems and Jewellery: Home market lends lustre

Bhavana Acharya | Updated on February 19, 2011

A model displaying designer wedding jewellery. PHOTO: K . Ramesh Babu   -  Business Line


Exports have for long been the mainstay of the Indian gems and jewellery industry. But they have taken a backseat to domestic markets in recent times, as the Indian consumption story took firm hold.

Strong economic growth, a bright job market, a developing retail real estate market and a certain immunity to rising gold prices meant that the Indian consumer was the answer for companies in the sector looking to scale up. The focus on domestic markets was also an effort to mitigate the risks of reliance on exports, in a fluid global market.


That is not to say that exports faltered. The year 2010 was one of recovery for the gems and jewellery exports.

The period April-December 2010 saw total gems and jewellery exports grow by 35 per cent (in rupee terms), against a far lower 11 per cent growth in exports during April-December 2009.

The Indian gems and jewellery industry appears poised to shore up presence in the export markets, as countries come out of recession. Yet, it continues to tap into the immense potential of the domestic markets.

However, jewellers have to grapple with increasing input costs and rising interest rates. Already functioning on slim operating margins of around 6-8per cent, margins could see further pressure.

Net margins for listed players, in fact, only just managed an improvement in the nine months ended December '10, to 3 per cent after languishing at 2 per cent for the two years prior. On the demand side, inflation too could cut into the hitherto healthy domestic market.


On the domestic front, rising gold prices saw plain gold jewellery losing ground to diamond jewellery in 2010. Jewellers launching low-value, low-priced diamonds targeted at the working woman, and the bridal segment further fuelled demand.

For instance, gold had long been the bastion of Titan Industries with its brand Tanishq. Titan increased its focus on diamonds late 2009 onwards, dropping price points and launching promotional campaigns. The segment now contributes 25 per cent of jewellery revenues in 2010-11.

Gitanjali Gems, predominantly a diamond player, saw diamond jewellery sales shoot up by 49 per cent so far in 2010-11.

Increased offtake in diamonds serves jewellers well, since margins on these products are higher. Indian retail buyers currently account for about 10 per cent of global diamond demand, according to estimates by the DeBeers Group.


Recessionary forces led to consistent declines in exports of polished diamonds for Indian players in the quarters between December 2008 and June 2009.

However, Indian diamond polishers dominate the market for smaller-value diamonds below 0.3 carats, helping to sustain exports to developed countries, where consumers down-traded from large diamonds to smaller ones. The December 2009 quarter saw a strong recovery with a 67 per cent rise in exports. A strong growth of over 30 per cent continued in the subsequent quarters.

Going forward, strong 2010 Christmas sales in the US combined with a rebounding economy and higher consumer confidence is likely to support demand. The US remains the largest export market for Indian jewellers, followed by the UAE.

This may benefit US-focused jewellery players such as Reniassance Jewellery, which had seen revenues dipping 29 per cent for FY-10 from the hefty 55 per cent growth in FY-09, and Goenka Diamonds, even as it reduced exposure to the US markets. Jewellers are also increasing supply to Asian countries such as Vietnam and export hubs such as Hong Kong to mitigate risks of geographical concentration. Prospects of European markets, though, still remain shadowed in uncertainty.

However, spurred by increased demand, prices of rough diamonds have shot up about 90 per cent from the prices in the first quarter of 2009, the low-point for diamond miners and jewellers. The ability of diamond miners to hold stock or reduce production to prevent steep dips in prices indicates that high input prices are likely to persist this year as well.


Notwithstanding rising diamond demand, gold still glitters for the Indian consumer. Even as average gold prices rose a whopping 47 per cent from Jan 2009 to December 2010, Indian gold consumption grew 66 per cent (in tonnage terms) in 2010 over 2009. Share of Indian buying in world gold demand stands at 32 per cent for the year 2010, against the 23 per cent in 2008.

Indian gold consumption has, historically, adjusted gradually to higher gold prices. For the quarter ending December 2007, average gold prices rose 13 per cent and demand fell 58 per cent. The following quarter, however, even as gold prices rose a further 19 per cent, demand grew 34 per cent.

A similar phenomenon occurred in 2010. Average gold prices rose 8 per cent in the September 2010 quarter, having already risen 7 per cent the quarter before. Demand in the September quarter increased 40 per cent, where it had declined 15 per cent the previous quarter.

Growth continued in the December quarter as well, up 24 per cent. Players such as Shree Ganesh Jewellery House, for which plain gold jewellery is the primary product offering, will stand to benefit as they increase exposure to domestic markets.

Demand for gold may hold up, driven by the wedding and festival seasons, especially in smaller towns and rural areas. For instance, Thangamayil Jewellery, a jewellery retailer with a chain of outlets in small towns in Tamil Nadu saw revenues in the April-December '10 period shoot up 39 per cent.

Besides, with gold price returns comparing well with every other asset class in 2010, investment demand may also be firm, what with mutual funds too looking to include gold in their product offerings.


A focus on domestic markets is a key trend that has emerged over the past year. Shree Ganesh Jewellery House, C Mahendra Exports and Goenka Diamonds tapped primary markets to raise capital for, among other things, open exclusive branded jewellery stores for their relatively new brands. Tamil Nadu-based jeweller Thangamayil Jewellery also raised capital to expand into new towns.

In line this year to tap capital markets are TBZ, Joyalukkas and Ratnachand Jewellers. Other South-based jewellers such as Bhima and Malabar Gold have charted rapid network expansion.

What explains this shift towards domestic markets? First, uncertainty hovered over the export markets, with consumption in Europe still to pick up, and that of US, the main export market, only taking off in late 2010. Two, strong Indian economic growth, a positive job market and returning wage hikes supported consumer confidence. A younger population with a higher propensity to spend on lifestyle products and gold's safe investment status in the light of volatile equity markets served to boost demand.

Three, the Indian jewellery market is dominated by unorganised players and regional jewellers. The branded jewellery market is, therefore, still in the initial stages of growth and could offer immense potential.

However, regional and new jewellers face an uphill task in building a national brand. They are up against the likes of Tanishq, Nakshatra, Orra, Sangini and others which have firmly established a presence. In a market where trust over authenticity of gems and gold plays a key role, existing brands score over newer, unknown ones.

Further, the existing brands have built their presence gradually over a number of years and new brands will need to make immense investment in brand-building, store expansion and time to create national brands. With a rising interest rate cycle, funding may become expensive, constricting near-term profitability.

Published on February 19, 2011

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