Gold Demand Rises In India After Duty Cut, While Diamond Sales Slow: JPMorgan

The Indian jewellery market has seen an increase in gold demand following a recent cut in customs duty, according to a report by JP Morgan.

The reduction in customs duty to 6% from 15% earlier to 6% has led to increased footfall, particularly among consumers fulfilling pent-up demand and advancing their wedding jewellery purchases, the report said, adding that the second quarter so far of the ongoing financial year has shown a surge in gold jewellery sales due to this price adjustment, which has resulted in a steady decline in retail gold prices, prompting consumers to return to the market.

Retailers such as Kalyan Jewellers India Ltd. and Senco Gold Ltd. have reported significant improvements in same-store sales growth during this period, JPMorgan said in a note, adding that Senco noted a 25-30% rise in sales in the first half of the second quarter, compared to 10% in the first quarter.

Despite the positive trend, the international research firm cautioned that some demand may be front-loaded, which could dampen sales growth in the latter half of the fiscal year as consumers might have already made their purchases in anticipation of the festive and wedding seasons.

The diamond segment, however, has faced challenges. High gold prices have driven consumers towards gold jewellery, leading to a slowdown in studded diamond sales, JPMorgan said.

Titan Co Ltd.—a leading player in the market—reported a 6% year-on-year growth in studded sales, compared to an 8% rise in overall jewellery sales, the report said, adding that the trend is further impacted by the growing interest in lab-grown diamonds, which some consumers view as a cost-effective alternative to natural diamonds.

While Titan and Kalyan Jewellers have been cautious about entering the lab-grown diamond space, Senco has launched a new retail format, "Sennes," dedicated to lab-grown diamonds, it noted. The report indicates that the long-term impact of LGDs on the natural diamond market is uncertain, making it a key area to watch.

The report also highlights the expansion strategies of major players like Kalyan Jewellers, which plans to open 80 new stores in India by the end of March 2025, driven largely by the franchisee model. Titan and Senco are also expanding, with plans to add 40-50 and 15-20 stores, respectively, the report added.

This expansion occurs in a competitive landscape where regional players are scaling up, and national brands are adopting more professional setups to maintain their market share. The report notes that while the lower customs duty will help formalise the industry, higher marketing spends and promotions will be necessary to remain competitive.

Despite these pressures, JPMorgan expects operating margins in the jewellery sector to remain stable. The one-off inventory impact from the duty cut will be spread over the next few quarters, minimising its effect on profitability, it said, noting that the medium-term outlook, however, could face pressure from lower studded diamond sales, a focus on gold, and increased promotional expenses.

Large retailers are also looking at overseas markets to leverage their brand equity. Titan plans to open nine new Tanishq stores abroad by March 2025, while Kalyan is set to launch its first store in the US before Diwali. Senco has already opened a store in Dubai.