Jewellery demand is expected to decline by 6-8 per cent in terms of volume following high gold prices and weak consumer demand in 2019-20, according to a report.
“Overall, we expect the jewellery demand to be subdued in FY20 with expected volume de-growth of 6-8 per cent on the back of elevated gold prices and weak consumer demand, rating agency Icra said in a report.
Gold jewellery demand in India has been subdued in the last five years ending FY19, affected by series of regulatory measures aimed at purging black money and formalising the industry and fall in investment demand given its lower returns compared to other asset classes, it said.
Jewellery buying is generally spread throughout the year and it peaks during Akshaya Tritiya, wedding seasons and festivities as buying gold is considered culturally auspicious, it added.
It stated that following an 8.9 per cent growth in FY18, gold jewellery demand was flat in FY19 due to rising gold prices, lesser number of auspicious days and tightened credit to the gems and jewellery sector.
Being a price-sensitive market, inflation in gold prices affect consumer sentiments and results in postponement of purchases by customers, it added.
The prices are currently at multi-year highs amidst trade tensions between the US and China, weakening dollar, rate cuts by the Federal reserve, slowing economic growth, geo political issues in West Asia and higher stocking of gold by key central banks to its reserves, the report said.
While domestic demand was strong in April-May 2020 amidst higher number of auspicious days and temporary fall in prices, there has been a steady decline in jewellery buying since June as gold prices rose sharply.
This apart, faltering rural demand, economic slowdown and liquidity crunch affected jewellery demand.
For the first half of FY2019-20, the demand de-grew by 9.5 per cent amidst 20 per cent rise in gold prices during this period.
The critical festive season of Q3 have been tepid although some recovery in expected in Q4 given the wedding season ahead.
However, in medium term jewellery demand is expected to grow at 6-7 per cent following growing penetration of organised sector, disposable income and favourable demographic dividend, cultural underpinnings, evolving lifestyle for the next five years, according to the report.
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Source: Financial Express