India's natural diamond industry eyes revenue stabilisation at $15 billion, not recovery

Kolkata: An analysis of 31 diamond-polishing companies rated by Crisil Ratings show that India's natural diamond industry is poised for revenue stabilisation rather than a broad-based recovery this fiscal. Resilient domestic demand should cushion weakness in exports, while lab-grown diamonds (LGDs) continue to reshape entry-level demand even as natural stones retain their premium appeal. Although profitability will remain under pressure and working- capital requirements elevated, supply discipline and prudent financial management should help keep credit profiles stable.

Industry revenues are projected at $14.8-15.2 billion in the current fiscal, remaining flattish year-on-year. This reflects an uneven recovery in global demand, albeit a stabilisation as against a declining trend seen in the last three fiscals.

The domestic market, which accounted for less than 15% of industry revenues in fiscal 2024, now contributes nearly a quarter of overall sales, reducing the industry's reliance on a handful of export markets. Domestic revenues are projected to grow 12-15% this fiscal, supported by organised retail expansion, rising consumer aspirations and premiumisation. In

In contrast, exports are expected to decline 5-7% to around $11.5 billion amid subdued jewellery demand in the key markets of US and China.

The export challenge is both structural and cyclical. LGDs have established a strong foothold in the US jewellery market, particularly in smaller and entry-level segments, aided by their affordability and growing consumer acceptance. In the first half of fiscal 2027, LGDs accounted for around 55% of export volumes but only 10.5% of export value, highlighting the sharp divergence between volume-led and value-led segments.

China remains another area of concern. Weak consumer sentiment and a sustained preference for gold continue to limit discretionary spending on diamond jewellery. Even so, natural diamonds retain their appeal in premium segments, where branding, rarity and emotional value remain key purchase drivers.

Says Rahul Guha, Senior Director, Crisil Ratings, “The industry's resilience is being driven by value rather than volume. LGDs are gaining ground in entry-level jewellery, while natural diamonds continue to command strength in premium categories. This divergence is evident in pricing trends: diamonds above four carats appreciated by high single digits between June and September 2026, while smaller stones were under pricing pressure from LGDs.”

Alongside these shifts in demand, supply discipline is helping restore market balance. Controlled rough-diamond procurement, lower inventories across the value chain and production discipline by miners are limiting excess supply and supporting price stability despite weak end-market demand. However, supply restraint alone will not fully offset the impact of lower capacity utilisation, intensifying competition and subdued export demand on profitability. Operating margins are expected to moderate by 40-60 basis points to 3.8-4.0% this fiscal. Working-capital intensity is also likely to remain elevated, with debtor days expected to increase to 90-95 and inventory days to 165-170.

Says Rushabh Borkar, Associate Director, Crisil Ratings, “Revenue stabilisation alone will not ease cash-flow pressures. Liquidity management and inventory discipline will be key to sustaining debt servicing as margins soften and working capital remains tied up. Companies that combine such financial prudence with a sharper focus on value-added businesses will be better positioned to capitalise on emerging growth opportunities.”

Despite these pressures, credit metrics are expected to remain stable. Interest coverage is projected at 2.3-2.4 times this fiscal, broadly in line with last fiscal. Total outside liabilities to adjusted net worth (TOLANW) should remain below 1 time, with net-worth accretion helping contain the impact of higher debt on leverage. The near-term outlook, therefore, is one of stabilisation rather than a broad-based rebound. Improved inventory discipline, a normalised supply chain and growing domestic consumption should place the industry on firmer footing. Any recovery in demand from the US and China would provide an additional upside to revenues and profitability.