Indian gems and jewellery sector may shine after 2010: Report

Melvyn Thomas / TNN / Feb 20, 2009, 22:49 IST

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Country's gems and jewellery sector will continue to operate under pressure and is likely to show sings of recovery only in 2010.

Indian gems and jewellery sector may shine after 2010: Report

SURAT: With low consumer demand for diamond jewellery in US and Europe causing pile up of inventory and severe liquidity problems for Indian diamantaires, country's gems and jewellery sector will continue to operate under pressure and is likely to show sings of recovery only in 2010.
This has been predicted by world's leading credit rating agency based in US -- Fitch Ratings -- in its recent report on outlook of Indian gems and jewellery industry-2009.
Fitch noted that lower demand was evident from Christmas and Valentine's Day orders in US and Europe. In all these years, several developed markets -- US, UK, Japan and EU, which are India's major export destinations -- are facing recession, clearly resulting in poor retailer sales. However, companies with a geographically-diversified revenue stream and higher exposure to East Asian markets are relatively less impacted than those focused purely on US and EU.
Fitch analysts Sourabh Shrivastava and Priyamvada Balaji -- who have prepared the report -- said the sector has high earnings volatility and depends on trends in both diamond prices and in the rupee and dollar exchange rate. Most players price their contracts on a combined basis, treating foreign exchange benefits as part of operating income.

"Poor demand has also resulted in declining prices of polished diamonds, which will clearly have a negative impact on margins," Balaji said.
Margins of many companies have fallen sharply as prices of rough diamonds that they had booked in advance to mitigate volatility fell sharply later, resulting in exchange rate losses.
Moreover, the adverse market conditions have increased pressure on receivables and operating margins. The Indian diamond industry has mostly stopped fresh purchases of rough diamonds and cut back on ongoing production and many diamond and jewellery units have closed down production for a period anywhere from 15-40 days. Till now, the industry is waiting for existing inventories to be liquidated, although in the interim they carry inventory price risk.
Experts said jewellery stores in US totalled $7.26 billion in holiday season in November, December-2009, falling 18.5 per cent compared to 2007 holiday season. This has resulted in major postponement and cancellation of orders across the sector.

About the Author

Melvyn Thomas

Melvyn Thomas is principal correspondent at The Times of India, Surat. He reports on the latest trends in the diamond and textile sectors. He also digs up special stories from the Surat Municipal Corporation and other government departments. He is a voracious consumer of films, books and music of all kinds. He is fascinated by the internet and follows all aspects of its development. He also dabbles in photography. He is both fascinated and repulsed by politics.

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