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The Reserve Bank of India's announcement of new measures on Monday are seen as a major relief to jewellery sector. For, imports on consignment basis and availability of gold to jewellery companies on lease will resume.
However, there is fear that linking of gold imports to exports could put some pressure on supplies for the domestic market. The first impact, though, will be on import of gold on a consignment basis and, hence, the premium for spot delivery in the domestic market would come down.
However, availability of gold on lease has eased jeweller concerns. They will not have to set aside the entire money in advance, saving on finance cost. Jewellery stocks were up on Tuesday by six to 19 per cent. At the Zaveri Bazar here, gold went up by Rs 395 per 10g and standard gold closed at Rs 27,720.
Edelweiss Research has reversed Titan's rating. Abneesh Roy, an analyst with the firm, said:, "Earlier regulations that placed restrictions on the gold lease model required upfront cash payments that increased costs to the jewellers, by way of interest and hedging. We had also cut our EPS (earnings per share) numbers for Titan by 10.4 per cent for FY14 and 15 per cent for FY15 but with withdrawal of the earlier restrictions, this could also reverse."
While allowing import under consignment and also removing the condition of 100 per cent cash margin, gold import has been linked to exports and 20 per cent of all imports shall be for providing to exporters. Import meant for domestic sale shall also be for providing to jewellers or to bullion traders who will provide it only to jewelers. This will put a cap on overall imports.
"Exports of gems and jewellery depend upon market forces overseas. In some cases, Indian ornaments remain uncompetitive due to high pricing. Looking at all these factors, the upper cap on gold availability for exporters will affect domestic jewellers," said Haresh Soni, chairman, All India Gems & Jewellery Trade Federation.
A source close to the importer community said import on consignment basis would begin in a day or two. This was also reflected in the premium for spot delivery, around $6-8 an ounce till Monday and since down by around $2.
RBI asked banks and nominated agencies to ensure that at a fifth of every lot of gold import (in any form/purity) be exclusively made available for the export. Also, they shall make available gold in any form for domestic use only to entities engaged in jewellery business/bullion dealers supplying gold to jewellers.
Banks and nominated agencies/star trading houses were importing gold for supply to both domestic jewellers and exporters. According to trade sources, the margins from domestic jewellers were six to eight per cent and exporters were availing gold at two to three per cent. Since RBI restricted gold import for domestic jewellers, nominated agencies halted import completely due to the thin margins, resulting in huge scarcity of supply.
In June, gold imports dived 80 per cent to 31 tonnes, against 162 tonnes in May and 141 tonnes in April. In July, imports are expected to go up to 55 tonnes.
