A fresh call by Prime Minister Narendra Modi urging households to curb gold purchases for a year has revived concerns over potential regulatory tightening and volatility in India’s jewellery sector, according to a recent equity research report by Jefferies.
The appeal, which includes avoiding wedding-related jewellery buying, is seen as part of a broader effort to conserve foreign exchange amid elevated crude oil prices and a weakening rupee. The move aims to reduce discretionary dollar outflows and mitigate risks of a widening current account deficit (CAD) during a period of external economic stress.
Jefferies draws parallels with FY2012–13, when India witnessed a surge in gold imports exceeding USD 50 billion annually, contributing to acute CAD pressure that peaked at around 6.8 per cent of GDP. The period also saw the rupee depreciate nearly 20 per cent within nine months, prompting aggressive government and RBI intervention.
At the time, policymakers introduced a series of restrictive measures, including steep hikes in import duties, curbs on gold loans, export-linked import rules and a ban on gold coin imports. These actions significantly impacted both supply and demand dynamics, leading to muted jewellery consumption and heightened industry stress.
While the current macroeconomic situation is not as severe, analysts caution that similar policy responses cannot be ruled out. Potential measures could include an increase in customs duty—currently reduced to 6 per cent from earlier highs of 15 per cent—as well as possible adjustments to GST rates.
Despite these risks, the organised jewellery sector is considered better positioned than in the past. Companies such as Titan have strengthened their sourcing strategies, with gold exchange now accounting for roughly 50 per cent of supply and domestic sourcing emerging as an additional buffer.
Titan has also reduced its reliance on gold leasing, though it still constitutes about 40 per cent of its requirements. Notably, the company reported bullion sales of approximately Rs 61 billion in the fourth quarter, indicating adequate inventory levels.
However, Jefferies warns that sentiment may remain fragile, particularly in the near term, with jewellery stocks likely to experience heightened volatility amid macroeconomic uncertainty and policy ambiguity.
The brokerage maintains a ‘Hold’ rating on Titan, assigning a price target of Rs 4,800, while highlighting risks such as rising competition, premium valuations and potential demand softness in a cautious consumption environment.
Overall, while structural improvements in the organised segment offer resilience, the sector remains vulnerable to policy shifts, currency movements and global commodity trends. |
