Titan, Kalyan Jewellers, Thangamayil Jewellery, Senco and Tribhovandas Bhimji Zaveri: Why the stocks are shining

Jewellery stocks have been soaring this year, especially since April. While the broad market rally aided in the upswing, cheap valuation of some stocks too invited investor interest. So far this financial year, stocks of companies such as Kalyan Jewellers (₹274.4), Thangamayil Jewellery (₹1,466) and Tribhovandas Bhimji Zaveri (₹122.5) have surged over 100 per cent. Also, Senco Gold (₹650.7), listed in July this year, has doubled compared to its issue price. Titan Company (₹3,283.8), the biggest player in the sector, has seen its stock price appreciate 31 per cent so far, this fiscal. In the corresponding period, Nifty 50 gained 14 per cent.

The primary reason is the fall in gold price. Gold, in terms of dollars, has depreciated 7 per cent from the high made in May to the current level of $1,933 per ounce. Gold futures on the Multi Commodity Exchange are down 4 per cent from the highs and trading now around ₹59,408 (per 10 gram). In general, decreasing gold can improve jewellery demand whereas increasing price can increase the investment demand.

Elevated inflation has been forcing central banks to remain hawkish with respect to policies, especially in the US. The recent economic projections by the US Federal Reserve indicate that the rates are likely to remain higher for a longer period than expected. Consequently, the dollar rallied, which weighed on the gold prices. So long as the interest rate remains high, particularly in the US, the dollar can remain bullish — which can put downward pressure on the prices of the precious metal.

The approaching festival and wedding season is another factor for the surge in the stock price of jewellers. Weddings, in general, can lead to big purchases. While the season itself can lead to higher sales for the companies, relatively lower prices can potentially provide a significant boost in revenue.

Boost from business update

On October 6, Titan Company and Kalyan Jewellers provided business updates for Q2FY24, which showed that the companies are building on the positive momentum witnessed in Q1. While Titan has reported an estimated standalone sales growth of 20 per cent for the quarter, Kalyan Jewellers has reported a 27 per cent growth in consolidated revenue.

In the first quarter of the current fiscal, Titan and Kalyan posted a consolidated top line growth of 26 and 31 per cent, respectively. Both the companies have also increased their presence in the Middle East by adding new stores for the September quarter.

Titan has reported a double-digit growth in domestic consumer sales and an increase in average ticket size. On the other hand, Kalyan Jewellers has reported revenue growth in all markets across India and healthy same-store sales growth. Hence, investors can be optimistic about other jewellers posting considerable growth and that the upcoming festive season can lead to good performance by the companies in the industry.

At this juncture, the risk is potential surge in gold prices because of the geopolitical uncertainties, rekindled by the Israel-Hamas war. This can lead to investors seeking safety through gold. However, as the interest rates remain high, not all investors looking for safe haven are expected to head towards gold. After all, treasuries provide interest income in addition to safety. So, the rally in gold prices can be limited and it is less likely to dent the gold rush in India, one of the largest consumers.

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