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Jewellery stocks such as Rajesh Exports, PC Jeweller and Gitanjali Gems have significantly outperformed the Sensex over the past month.
Falling gold prices are a key reason, as the general belief is that lower prices push up consumption demand for gold jewellery.
The coming festive season could provide further impetus to demand.
However, analysts believe this is more of a sentiment rally and not sustain, as gold demand might not be high this time for a couple of factors. First, against the sharp fall in gold prices about two years ago, the fall is gradual. Second, as gold could fall further from current levels, customers might want to postpone their jewellery purchases either partly or fully in order to save more.
Abneesh Roy, director, institutional equities research, Edelweiss Securities, says, "Whenever gold corrects sharply, we witness huge footfalls. This time, gold prices have not crashed but reduced gradually. Plus, the festive season is still one month away. People will be more circumspect this time. Given that the uptick will be spread out over time, the impact on the financials of jewellery companies is unlikely to be meaningful. Thus, there are few catalysts for a further rally in jewellery stocks."
Jewellery companies, too, are witnessing limited demand uptick for now, with some believing the near-term outlook remains unexciting due to the expected fall in the price of the yellow metal.
R K Sharma, executive director and chief operating officer, PC Jeweller, says, "Despite a minor uptick in footfalls, customers are postponing their purchases, given the overall bearish outlook on gold prices. An increase in interest rates by the US Fed will lead to a stronger dollar and weaken gold prices further. We expect jewellery demand to be average."
Sharma, however, is hopeful that demand might improve once gold prices start picking up.
The impact of falling prices will also vary with the customer segment jewellery companies cater to. While PC Jeweller caters largely to those buying jewellery for marriages, Titan's jewellery business, Tanishq, has a strong presence in jewellery for working women as well as other occasions. Customers' budgets tend to be much larger in case of jewellery for marriage versus those used on a regular basis. Also, the gold harvesting scheme is quite significant for Tanishq. Titan had re-launched this scheme in the third quarter of the previous financial year and it has gained traction. Thus, Tanishq has witnessed better response from its customers in recent times.
Sandeep Kulhalli, vice-president, retail and marketing, Tanishq, says, "Our renewed gold harvesting scheme has picked up rapidly and customers are returning to Tanishq. The response is much closer to our targeted levels. This has led to increase in jewellery sales across categories."
However, the gold harvesting scheme is a large part of revenues - an earlier scheme formed 30 per cent of it - only for Titan. It forms less than five per cent of PC Jeweller's revenues and is much smaller for others.
When asked how the customer response was this time, Kulhalli agreed that demand would be more spread out this time. "Given that gold prices could correct further, customers have spread their purchases," he says.
The Titan scrip has not participated in the recent rally. Its high dependence on gold harvesting could be one reason, while a slowdown in its other key business segment of watches could be another.
