Poor monsoon adds to drop in demand in rural areas; trade and jewellery bodies fear worst
Asteep rise in gold prices due to depreciating rupee has hit its demand severely, with volumes down as much as 40% in the May-August period. Rural demand for gold jewellery, which accounts for 70% of its sales in India, has also declined sharply owing to a deficient monsoon, and jewellery associations and trade bodies are fearing the worst.
?Rise in gold prices, duty structure and poor monsoon are affecting demand,? said Prithviraj Kothari, the president of Bombay Bullion Association. ?The wedding season in May-June was flat, and customers are pushing back their purchases.?
Exports have also fallen by about 7% in last one month, and the country is facing a lull in demand for gold, according to the Gems and Jewellery Export Promotion Council (GJEPC).
?The depreciation of the rupee is a major factor for this dip in demand across regions, because internationally gold prices have not gone up,? says Rajiv Jain, the chairman of GJEPC. ?The 2% excise duty is an additional hit on exports, which are down 20% since March.? The rupee has depreciated about 15% since March, resulting in sky-high gold prices. On Tuesday, 10 gram of gold cost R29,900 on the benchmark MCX index.
For organised retailers of gold jewellery, sales and volume growth dropped to single digits in the June quarter. Tanishq, owned by Tata Group?s Titan Industries, recorded a 7.8% growth in its income during a very ?challenging quarter?. Meanwhile, Titan?s overall revenue, which also includes watches and eye-gear segment, grew at 9.2%.
?Gold in rupee terms touched its peak during this quarter, thus, affecting the growth of jewellery,? said Bhaskar Bhat, the managing director of Titan Industries. ?Consumer response was good only to discount offers, thereby impacting margins.?
For Gitanjali Gems, which retails in gold and diamond, turnover of the jewellery business dropped 25% sequentially in the June quarter. The company’s total income, too, fell from the March quarter.
?Due to high gold prices, value has gone up but volumes are down almost 10%,? said Mehul Choksi, the chairman and managing director of Gitanjali Gems. ?We are also seeing a shift towards diamond jewellery, but hope that gold sales will pick up as the festive season kicks off.?
Looking ahead, factors such as high inflation and a poor monsoon are likely to dent gold buying in the country. “External factors alongwith a very weak rupee may have an adverse impact on our targeted growth,” said Bhat of Titan Industries, which earns 60% of its revenues from jewellery operations. ?The rupee won’t recover, and only a good monsoon can bring back demand for gold,? says Bombay Bullion’s Kothari.