Ind-Ra predicts negative outlook for diamond exporters in FY’18
The Dollar Business Bureau
India Ratings and Research (Ind-Ra) on Friday said that it has kept a negative outlook on the cut and polished diamond exporters and a stable one on the organised jewellery retailers for the financial year 2017-18.
According to the World Gold Council (WGC), the demand for gold jewellery in India fell steeply by 22% year-on-year to reach a 7-year low of 522 MT in 2016. The demand was severely impacted due to several events that occurred last year like country-wide strikes by jewellers and the severe cash crunch due to the withdrawal of 500 and 100 rupee notes by the Government.
After a four-month disruption on both supply and demand side, the decline in consumers demand was led due to some obtrusive factors.
However, the underlying demand for jewellery remains robust, given strong macro-demographics of the country and Indian customers affinity towards the gold metal. Therefore, demand is expected to bounce back to an average of five years of 600 MT this year, the rating agency said in its report.
Over the past two years, the Government has been making regulatory changes in order to control the illicit trade practices that are prevalent in the jewellery sector and these are possibly going to benefit the jewellers in organised sector at the expense of the unorganised ones.
Retailers may face an overhang of the proposed Goods and Services Tax (GST) and a high slab-rate can turn out to be a dampener for demand mainly for the non-wedding category, it said.
The cut and polished diamond exports surged 13% year-on-year to $16.8 billion during the nine-month period of 2016-17, after falling consecutively for two years, according to the Gems and Jewellery Export Promotion Council (GJEPC).
Though cut and polished diamond exports have bounced back, the agency thinks that the middle-level players can still face headwinds on the demand of diamond jewellery due to economic and political environment in major export markets. Besides, these players will continue to manage on narrow margins and carry the price/inventory risk, said the report.
The rating agency said that producers of rough diamond continued to lessen down the prices by about 5% in 2016, whereas maintaining the output close to the levels of 2015 of 128 million carats.
Ind-Ra also expects that rough diamond prices continue to be stable in 2017, if cut and polished diamond prices fall sharply on account of muted demand and the producers of rough diamonds are forced to lessen down the prices again.