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Indian Jewelry Shares Continue to Slide

Weak Rupee, Gold and Government Policy Take its Toll
Jul 3, 2013 4:35 AM   By Avi Krawitz
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RAPAPORT... Indian jewelry shares continue to slide this week as the weak rupee and recent slump in gold prices have impacted investor confidence in the sector.

“The volatility of gold and the rupee dollar rate has hit jewelry manufacturers and so has the recent government interventions curbing gold imports,” explained Prashanth Tapse, an associate vice president of research at Mehta Group. “So if you’re holding a huge inventory of gold and the price has come down by $400 an ounce your costs were enormous and the value of your inventory has decreased.”

Shares of Gitanjali Gems, considered India’s largest gold and jewelry company, have slumped more than 60 percent since mid-June and were down 5 percent to INR 202.85 in early Wednesday afternoon trading on the Bombay Stock Exchange (BSE). Shares of Titan Industries, which owns the popular Tanishq brand, fell 23 percent in the past month and were down 4.5 percent at INR 222.1 on Wednesday. Similarly, shares in Shree Ganesh Jewellery House fell 23 percent in the past month and by 6 percent to trade Wednesday at INR 74.2 on the BSE.

“Both gold and the rupee have given significant returns in the past 20 years but that has changed in the past year and a half,” said AK Prabhakar, the senior vice president at Anand Rathi Financial Services.

The rupee fell to a record low of 60.71/$1 in late June and has depreciated by 9 percent since the beginning of the year. Simultaneously, gold has dropped 25 percent so far this year, trading at $1,239.60 an ounce on Wednesday. In rupee terms, gold is down 18 percent for the year.

In early June, the government raised the import duty on gold from 6 percent to 8 percent after increasing the duty from 4 percent in January. The government continues to attempt to control its widening current account deficit and this week urged its citizens to resist buying gold. The Reserve Bank of India estimates that gold imports account for about 80 percent of the country’s current account deficit.

Analysts see further downside for jewelry companies with Gitanjali forecast to register the steepest losses. Prabhakar noted that Gitanjali has corporate governance issues that also discourage investors. Tapse added that the company holds large gold inventory and is trying to change its strategy to reduce its dependency on gold and shift toward diamonds and platinum, which give better margins. He expects Gitanjali’s share to stabilize at around INR 150.

Prabhakar expects other jewelry shares to decline about another 5 percent before the sector will be attractive to investors again, with Titan Industries being his “best buy.” Tapse agreed but cautioned that it will take at least another quarter for the sector to settle. “This quarter will bring foreign exchange losses, inventory losses and tight margins,” Tapse noted.

While they expect the rest of 2013 to be a tough period for jewelry companies, both Prabhakar and Tapse stressed that Indian consumers have not lost their appetite for gold jewelry.

“In India, jewelry demand depends on a good monsoon and marriage season. If there’s a good monsoon, farmers will buy gold and there are always a lot of marriages here. So demand is always for gold jewelry is always high,” Tapse said. “Right now, government is trying to control buying of physical gold but it’s still considered the best investment option for the Indian consumer.”
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Tags: Avi Krawitz, diamonds, Gitanjali, jewellery, Jewelry, Rapaport, Rupee, Shree Ganesh, Tanishq, Titan
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