The last Union Budget gave a positive surprise to the gold sector as the government lowered import duties, spurring demand for the precious metal and fine jewellery. In this year’s budget as well, industry players and analysts are expecting policies aimed at reducing the tax burden, enhancing formalisation in the sector, and streamlining GST compliance.
These anticipated changes could create a favourable environment for gold jewellery companies, boosting investor confidence, say experts.
Last year, government had cut the import duty on gold from 15 percent to 6 percent, providing a strong tailwind for jewellery stocks, which saw impressive growth in the following months.
Not surprising, stocks of major jewellery companies such as Kalyan Jewellers, PC Jewellers, Goldiam International, Thangamayil Jewellery, Motisons Jewellers, and Sky Gold have surged as much as 167 percent in the last one year.
In comparison, MCX Gold has risen by 28 percent during the same period.
The India Bullion and Jewellers Association has suggested that reducing the import duty further to 3 percent could make India’s jewellery exports more competitive globally. Such a move would not only benefit the broader jewellery sector but could also positively impact the profitability of companies like Kalyan Jewellers and PC Jewellers, making their stocks more attractive to investors.
The jewellery industry is optimistic that the budget this year will continue the positive policies initiated in the previous year, helping boost consumer demand for jewellery. Industry players are also calling for tax relief measures to increase disposable income and consumption that could drive higher demand for gold, creating a potential upside for gold jewellery stocks.
Additionally, the rising popularity of digital gold, which can be bought online in small denominations and converted into physical jewellery, is an emerging trend. The industry hopes the budget will address the need for a regulator for digital gold, according to the World Gold Council.
Moreover, the industry is hoping for a shift in the Reserve Bank of India's stance on its 2013 ban on EMIs for gold and silver jewellery purchases through credit cards. If the RBI eases its restrictions, it could lead to higher sales for jewellery companies, driving up stock valuations. As jewellery purchases become more accessible through EMIs, the demand for gold jewellery would likely rise.
Another key request from the industry is to make the gold monetisation scheme more attractive for consumers. Introduced in 2015, the scheme allows individuals to deposit their gold in banks and earn interest.
"This would mobilise idle household gold, reducing the gold import bill and helping decrease the current account deficit," said M P Ahammed, Chairman of Malabar Group. If this policy is enhanced, it could increase the flow of gold into the market.
With gold prices continuing to rise, the industry is also pressing for tax relief on GST, which is becoming increasingly burdensome for both businesses and consumers.
"To stimulate demand for precious jewellery, the budget needs to introduce tax relief measures that increase disposable income and consumption. Measures to combat inflation’s impact on consumption would also be welcomed," said Ahammed.
These tax relief measures could provide further support for jewellery stocks, making them more appealing to investors looking for growth in the sector.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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