India’s organised gold jewellery retail sector is likely to see a further 13-15 per cent year-on-year decline in sales volumes this fiscal, following an 8 per cent drop last year, amid elevated gold prices and the recent import duty hike, a report said on Friday.
However, the sector is poised to achieve a robust revenue growth of 20-25 per cent year-on-year, driven by higher realisations, Crisil Ratings said in a report.
Elevated gold prices will lead to increased inventory holding costs and higher bank borrowings, however, a growth in both revenues and cash accruals will offset higher reliance on debt, resulting in stable credit profiles, as per the report. In FY26, India imported 720 tonnes of gold, leading to a foreign currency outflow of USD 72 billion.
Amid sustained high gold prices and as a measure to reduce the trade deficit and support the currency, the government recently raised customs duty on gold to 15 per cent from 6 per cent, aiming to reduce demand and curb imports, which is expected to hit the sales volumes to the lowest level in a decade, excluding the Covid-impacted fiscal 2021.
Although the uptick in realisations will yield inventory gains for retailers, some of these gains may be passed on to customers as deeper discounts to incentivise volume sales. Domestic gold prices soared by 55 per cent last fiscal due to a rise in global prices amid geopolitical uncertainties, as well as a depreciating Indian rupee against the US dollar.
This has hurt affordability, prompting a shift towards lightweight, lower-carat gold jewellery (16-22 carat range) and studded jewellery.
Meanwhile, investment demand has gained traction over the past two fiscals, with jewellery sales plummeting 25 per cent and sales of gold bars and coins surging over 50 per cent. However, the persistently high gold prices and the recent hike in customs duty on gold are likely to dampen demand across segments.
“The government's decision to more than double the customs duty on gold will be a significant deterrent to demand for gold jewellery. While we see a notable shift towards gold bars and coins driven by investment demand, that is unlikely to fully offset the decline in overall demand. As a result, the volume of the gold jewellery retail sector will decline 13-15 per cent YoY to 620-640 tonnes this fiscal, a level not seen in the past decade,” Crisil Ratings Director Himank Sharma said.
Crisil Ratings associate director Gaurav Arora said, organised retailers are expanding cautiously through franchise-led models, which is improving capital efficiency and widening their reach into tier II and III cities.
“While overall debt will increase by a third this fiscal to maintain higher inventory levels for new and existing stores, credit profiles will remain stable, supported by improved revenues from higher realisations and healthy cash accruals,” he stated.
All said, steep fluctuations in gold prices, further changes in regulations and import duty on gold, potential government restrictions on gold purchases and changes in consumer sentiment need to be watched, the report added.
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