Jewellers Shine as RBI Eases Gold Curbs
The stocks of jewellery makers rallied up to 20% on Thursday after the Reserve Bank of India eased gold import norms. PC Jeweller surged 19.59% to close at Rs 123.90 on the Bombay Stock Exchange. The stock hit its 52-week high of Rs 124.30 earlier in the day. Thangamayil Jewellery gained 19.97% to close at Rs 154.40, Tribhovandas Bhimji Zaveri rallied 19.96% to Rs 191.75, Gitanjali Gems was up 11.93% at Rs 102.30, Rajesh Exports gained 11.10% to close at Rs 142.10 and Titan Company climbed 6.55% to close at Rs 330.45. The rally followed RBI’s announcement that select trading houses will now be allowed to procure gold in addition to permitted banks. The central bank also eased some financing rules, allowing banks to give gold loans to jewellers. Analysts said the move will increase gold supply, improve consumer senti- ment and brighten the earnings outlook for jewellery makers “We expect jewellery stocks to witness consistent re-rating in the coming quarters. We have upgraded Titan and Tribhovandas Bhimji Zaveri to ‘ buy’,” said Abhijeet Kundu, analyst at Antique Stock Broking. Analysts said lifting the ban on gold loans will be a big positive for the sector as it will lead to a significant reduction in interest costs on sourcing of gold.
Under the gold-on-lease arrangement, companies can take gold on lease for up to 180 days instead of buying it with upfront cash at much lower interest rates. “The industry used the gold-on-lease model before the ban, and RBI’s recent relaxation will help players sharply reduce debt, thereby boosting return of
The move is expected to lead to a significant reduction in interest costs on sourcing of gold
capital employed and working capital cycle,” said Abneesh Roy, analyst at Edelweiss Securities.
The new stipulations will improve gold supply in India, the world’s second-biggest consumer of the metal, to 55 tonnes per month from the current 25-30 tonnes. They will also reduce premiums to $20 per ounce from a peak of $160 per ounce, analysts said. “We expect other restrictions on gold like the 80:20 rule and high import duties to be also taken off gradually, as the currency has returned to comfort levels and the illegal import of gold has become a concern for the authorities,” Arnab Mitra, research analyst at Credit Suisse, said in a note to its clients.
Last year, RBI had imposed severe restrictions on gold imports to check the burgeoning current account deficit and sliding rupee. The bank had tied imports with exports and prescribed an 80:20 formula, which required nominated agencies importing gold to export 20% of the imported gold.