economic times-It's one step forward, two steps back for the jewellery stocks.
When it was looking like the prospects of the gems and jewellery sector would improve after a one-and-a-half-month-long strike by jewellers following the Union Budget earlier this year, the government's announcement of a ban on Rs 500 and Rs 10,000 currency notes - accounting for 86 per cent of the money in circulation - has cast a shadow over the sector.
Select jewellery stocks have tumbled up to 40 per cent ever since Prime Minister Narendra Modi announced the demonetisation move last week.
Rating agency India Ratings expects demand for gems and jewellery to decline over the next two to three quarters.
"This would result in weakening of credit profile of industry players due to high working capital cycles and high operating leverage. The unorganised segment will be hit particularly hard given their large proportion of unaccounted inventory and high proportion of cash sales," the rating agency said.
HDFC Securities sees a significant hit on gold and jewellery sales.
Jewellery buying is "a traditional way of spending black money in India. While PAN disclosures have already curbed transactions worth over Rs 2 lakh, the latest demonetisation will deal a further blow. We expect sustained weakness in most jewellery stocks," the brokerage said.
Shares of PC Jeweller hit a low of Rs 288.75 in trade on Tuesday. Since November 8, when the currency ban was announced, the stock has lost 39.91 per cent of its market value.
The scrip of Tribhovandas Bhimji Zaveri (TBZ) has taken a 26 per cent knock since then. Gitanjali Gems (down 21.49 per cent), Titan Company (18.33 per cent) and Tara jewels (down 15 per cent) too have corrected sharply since then.
JM Financial in a note said the stock is likely to see a negative impact on demand for large-ticket jewellery items but the move will facilitate conversion of unorganised jewellery sector into the organised form in the long term.
"Over the medium term, organised industry players will benefit at the cost of the unorganised players. Gold imports through the unofficial channel are likely to reduce. There will be no significant impact on jewellery exporters, because it is mostly an organised market and sales are done against invoices," India Ratings said.
Earlier this year, jewellery associations across the country had protested the government move to impose a one per cent excise duty on non-silver jewellery.
There have been regulatory changes, including the imposition of the 80:20 rule, which impacted organised players more than the unorganised ones. That said, other measures such as mandatory PAN card for transactions above Rs 2 lakh and mandatory hallmarking of jewellery too have hurt the unorganised players more than the organised industry.