JEWELLERY STOCKS LOSE THEIR DAZZLE
By Ruma Dubey
The one community of people who were extremely happy with Modi and his demonization drive on the 8th November were the jewelers. They were prepared for some more duty hikes and clamp down measures from Govt but they all got more than a bonus and more with the banning Rs.500 and Rs.1000 notes.
The small jeweler at the roadside corner, who was most certainly not amongst the PC and Tribhovandas category said that 8th November was his best day ever in his 40 years of business. The moment people knew about the ban starting from midnight, he had prebooked almost his entire shop and more in his storage. He said that people did not even want to see the pieces they were buying; they just said that they had 2,5,10 or more lakh of rupees and they needed something to “fit” into that amount.
Later, we all know that jewelers were making merry – selling 10 tolas or one gold biscuit for Rs.50,000 to Rs.55,000/tola when the ruling price then was around Rs.30 to 33,000/tola. Obviously jewelers had a lot of ‘unaccounted” gold and all this was sold without a bill; the transactions did not happen in the shop but delivery of money and gold was done elsewhere.
Yes, the Govt got the whiff of it and IT raided many jewellery shops but by then, most had sold off whatever they could and that was quite a sack full. It had recently come to light that Marathe Jewellers of Pune had sold gold worth Rs.70 crore between 8th and 9th November – in its life time, it had never ever sold so much. There is data stating that gold worth Rs 5,000 crore, or around 15 tonnes – which is over a fifth of the monthly sales of gold in a normal year, was sold between 8 pm on November 8 and 2-3 am the next day. Surendra Mehta, national secretary of India Bullion & Jewellers Association (IBJA) said that some 1,000 of around 6 lakh jewellers across the country had accepted Rs 500 and Rs 1000 notes in exchange for gold on the night of November 8.
One more statistics - According to records of Ahmedabad Air Cargo Complex, 18.65 metric tonne (MT) of gold was imported to Gujarat in November, which was at a 20-month high and double of that in October.
It was only much later, after all the existing gold was sold that the jewelers, especially those in diamond sector felt the pain as there, getting labor done is almost always through cash. Many diamond shops have closed down after Diwali and are yet to reopen post demonetization. De Beers said that its sale of diamonds plummeted in the final sale of the year in December.
So the point here – jewellery companies, the big ones will show a spike up in sales for 8th November and this will be good enough to cover up for the slower demand in the ensuing days. Unofficial sales will obviously not be accounted for but the news is that most of them have been able to clear off all their inventory.
More importantly, the marriage season – one got over and one more is on its way. The big stores have managed to create an online presence for themselves and those have been witnessing strong sales. Thus jewellery companies will be affected but not like the dramatic way in which we had expected it to. We are sure to see a lot of “ingenious” accounting in these companies; after all everyone will try to get over this demonetization in their own way.
Does this make jewellery stocks into a “buy?” Not quite. Though the stocks have recovered considerably from their fall as soon as demonetization was announced the jury is still out – one does not know for sure as to how long will the effect be and how much would be the actual impact. PC jewelers, Titan Company, Renaissance Jewellery, Tribhovandas Jewellery are all bigwigs but the relatively smaller ones – Thangamayil, Ganesh, Tara might take a long while. Nomura has put out a report saying that this demonetization could have a much long term effect.