The import duty cut on gold from 15% to 6% announced in the Budget is expected to curb smuggling activities, jewellery companies such as Titan, Kalyan, Malabar Gold, De Beers and PNG Jewellers said.
“High import duty often leads to increased smuggling of gold through illegal routes, which hampers the growth of the organised retail gold trade,” said MP Ahammed, chairman at Malabar Group. “The import duty cut benefits both organised retail jewellers and consumers as gold prices will fall, boosting demand ahead of the festive and wedding season,” he added.
“Indian jewellery demand was hit by record-high gold prices, but the duty cut will bring down prices and boost consumption,” Saurabh Gadgil, chairman at PNG Jewellers, said.
Shares of Titan and Kalyan Jewellers were up between 2% and 9% intra-day on Wednesday, before settling at 0.14% and 6.29%, respectively, on the BSE. These stocks had rallied by up to 10% on Tuesday after the duty cut was announced in the Budget.
Local gold prices were hovering around `71,000 per 10 gram on Wednesday, down from `75,000 per 10 gram seen earlier this month — a drop of 5.33%.
The World Gold Council (WGC) estimates that up to 160 tonne gold is smuggled annually into India, which is 20% of the annual demand of 800 tonne.
Dubai, according to experts, is a major source for all the smuggled gold coming into the country, either directly or via Bangladesh, Nepal, Myanmar or Sri Lanka.
Sachin Jain, CEO of the World Gold Council’s India operations, said the duty cut will reduce the incentive to smuggle gold into India, creating a level-playing field for local players.
Amit Pratihari, MD at De Beers Forevermark, said sales would improve as jewellery from precious metals such as gold, silver and platinum become affordable. “These new measures will strengthen the valued investment of Indian households in these precious metals,” he said.
In its quarterly update for the April-June period earlier this month, Titan said its jewellery business witnessed single-digit (9% year-on-year) revenue growth due to high gold prices, fewer wedding days and subdued consumer demand. Company executives said the second half of the ongoing fiscal would be better due to the duty cut and improved consumer demand on the back of the wedding and festive season.
“A likely accelerated shift of consumers towards the organised sector, moving away from the local players makes a strong case for Titan. The reduction in gold customs duty should improve Titan’s growth outlook,” global brokerage Macquarie said in a report.
Executives at Kalyan Jewellers also remain hopeful of a stronger second half this year after the duty cut, saying that the growth in consumer demand due to the fall in prices will benefit organised players.