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Gold July 20, 2016 09:30:26 AM

ICRA downgrades Indian gold jewellery demand growth estimates to 3%

Anil Mathews
ScrapMonster Author
According to rating agency ICRA, the Indian gold jewellery industry is expected to grow only by 3% during 2016.

ICRA downgrades Indian gold jewellery demand growth estimates to 3%

NEW DELHI (Scrap Monster): According to rating agency ICRA, the Indian gold jewellery industry is expected to grow only by 3% during 2016. The agency has revised downwards the estimates from its earlier projection of 5-6%. The subdued performance of the industry is mainly on account of drop in demand due to sharp rise in prices of gold. The medium to longer term view maintains growth in demand growth, aided by anticipated recovery in rural gold demand.

The uncertainty in global markets including Brexit and a handful of other factors has lifted the gold prices in the past few weeks. In international market, gold has managed to climb above the psychological resistance levels of $1300 per Oz. In tandem with international prices, the gold prices in India too witnessed sharp upsurge, surpassing the levels of Rs 31,000 per 10 grams. The sharp gold prices are likely to deter fresh gold purchases and boost recycling activity.

The economic uncertainty and unrests in European countries may keep the gold prices buoyant in the near term. The steady rise in prices would dent gold purchase volumes. However, ICRA expects the Finance Minister to make several announcements to boost the country’s rural economy in the upcoming budget. These measures may spur rural gold demand over the period of next three years. ICRA predicts demand growth of 3-4% in 2017, when it expects gold prices to stabilize at higher levels. Gold price stability will lead to customers reverting to fresh gold purchases.

ICRA’s recent survey of retail jewelers indicates that the organized retail jewellers are likely to outperform the broader industry growth. The organized retail jewelers account for nearly one-fourth of the total market share and are likely to cater to the changing consumer preferences. ICRA also noted that improved financing criteria would provide capital support for expansion of branded jewellery players in the country.

Meantime, data from consultancy Thomson Reuters GFMS indicates that the gold imports by the country has remained extremely weak during the past few months. The estimated gold imports by the country during the first half of the year is around 200 tonnes, dropping considerably to almost half when matched with the imports during the corresponding six-month period in 2015.

According to Bachhraj Bamalwa, director at All India Gems and Jewellery Trade Federation, the yearly gold imports by the country is likely to total around 600 tonnes in 2016, considerably less when matched with the imports of 904.5 tonnes last year. He expects the gold demand to pick up during the second half of the year on account of festival and wedding season demand.

International gold prices which dropped sharply by over 36% during the past three years had managed to stage a sharp recovery during 2016, surging higher by almost 25% year-to-date. However, fear of further drop in prices is forcing customers to sell their gold holdings and postpone their decision to buy more gold. Also, rise in scrap gold supply has boosted gold discounts in the country. Earlier this month, the discount on gold had hit record high of $100 per Oz in comparison with international gold market prices.

ICRA Limited is an Indian independent and professional investment information and credit rating agency. It was established in 1991, and was originally named Investment Information and Credit Rating Agency of India Limited.

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