Demonetisation after effect: Gem and Jewellery sector

The Government of India’s bold move to demonetise the old high denomination currency notes of Rs 500 and Rs 1000 for curbing black money and illegal transactions has seen most of the jewellery stocks facing the heat. In India, the old high denomination currency notes contributed about 86 per cent money circulation, causing a shadow over the jewellery industry.  

India is the world’s largest gold consumer and imports a sizeable chunk of its total annual gold consumption of around 900 to 1000 tonnes.

Rating agencies in India also expect demand for gems and jewellery to decline over the next two to three quarters. From business operations point of view, demonetisation will result in weakening of credit profile of industry players due to high working capital cycles and high operating leverage. The unorganised segment will be hit particularly hard, given their large proportion of unaccounted inventory and high proportion of cash sales.

Buying jewellery is a traditional way of spending unaccounted money in India. Meanwhile PAN disclosures have already curbed transactions worth over Rs 2 lakh. Going forward, there will be weakness in most of the jewellery stocks.

Some of the major jewellery stocks hit by the demonetisation move since November 9:

Titan Company -- 12.99%

PC Jeweller -- 19.40%

Gitanjali Gems -- 16.99%

Rajesh Exports -- 2.43%

Tara Jewels -- 7.67%