MUMBAI: Elevated prices of gold and tightening of credit to the sector following massive bank frauds involving jewellers is likely to weaken jewellery demand in 2018. Rating agency Icra expects the growth in jewellery demand to weaken by 2-4 per cent in volume terms due to higher prices and subdued financing environment. It added that the industry continue to remain susceptible to the regulatory risks, which has affected both demand and supply.
“Financing to the gems and jewellery sector have been under increased scrutiny in the recent months following reporting of fraud by few lenders on their exposures to the sector. With enhanced due diligence and checks on credit quality and inventory quality, lenders are more cautious on the sector. We expect the tightened credit availability to affect the working capital position of jewellery retailers, especially the unorganised ones,” said K. Srikumar, vice-president, Icra.
However, over the medium term, Icra expects the gold jewellery retail industry to record a 6-7 per cent volume growth, supported by stable rural and wedding demand, cultural affinity for gold, rising disposable income, and favourable demographic profile.
According to Icra, there has been a marked shift to organised trade post demonetisation and GST.
In 2017, the gold jewellery demand grew by 12 per cent in volume terms and 9 per cent in value despite headwinds in the form of higher GST rates, inclusion of jewellery sector under the ambit of Prevention of Money Laundering Act albeit for a brief period, and continued preference for other asset classes due to better returns.
The growth was supported by factors like pent up demand on the back of favourable gold prices, pre-buying ahead of GST rollout, extended wedding season and strong rural demand with good crop output.
