Jewellery stocks soar on festive hopes, gold prices slide

MUMBAI: Shares of gems and jewellery companies soared as much as 20% on Monday on expectations of a jump in sales in the upcoming festival and marriage seasons amid falling gold prices. Traders also placed bets on hopes that the government may ease curbs on gold imports as the current account deficit (CAD) is within the manageable limit.

“Some of the leading jewellery stocks such as PC Jeweller and Tribhovandas Bhimji Zaveri look like interesting buys, as they are trading at attractive valuations, which is around 10 times its P/E multiple based on FY16 estimated earnings,” said Vinod Nair, head of fundamental research at Geojit BNP Paribas Financial Services. “The margins of jewellery companies may rise in the coming quarter as festive season followed by marriage season will boost sales.”

A pick-up in demand will coincide with a slide in gold prices. The metal has declined to its lowest in eight-and-a-half months to around $1,210 an ounce (about Rs 72,600 per 28.3 gm) in the international markets. At India’s MCX, gold for delivery in October 2014 was trading at Rs 26,400 per 10 gm.

A fall in gold prices could trigger surge in demand for gold jewellery ahead of the year-end festivals like Diwali, Dhanteras and the wedding season, say analysts.


“There are expectations building up that the Reserve Bank of India may ease curb on gold imports. The turnover of gold cos is also expected to rise as falling prices will attract more buyers into the market,” said Rakesh Goyal, senior vicepresident at Bonanza Portfolio.

Post the election results in May, expectations of a relaxation in gold import restrictions were seen increasing. The previous government had imposed a series of curbs on gold imports in 2013, including raising customs duty to 10% from 2% in three tranches, to rein in the country’s ballooning CAD, which touched an alltime high of 4.8% of GDP in 2012-13. RBI also imposed curbs on gold imports such as the 80:20 rule, which mandated export of 20% of gold imported.

The CAD narrowed to 1.7% of GDP in the first quarter of FY15. The participation of jewellery stocks in the current rally has been mixed. Shares such as PC Jeweller and Rajesh Exports rallied between 100% and 200%, whereas cos like Tribhovandas Bhimji Zaveri and Gitanjali Gems gained up to 25%. Over this time, the BSE Smallcap rallied 69%.

On the Comex division of the New York Mercantile Exchange, first-month gold futures fell 12% to around $1,210 an ounce on Monday from a high of $1,379 on March 14. Goldman Sachs has forecast gold will decline to $1,050 this year.

Analyst say gold premiums in India are likely to rise from current levels of $7-10 per ounce to as high as $12-15 per ounce ahead of festival season as weak prices may ignite more buying activity.