After Gitanjali Gems hit lower circuit for five consecutive sessions this week, stock exchanges have decided to reduce circuit limit for the stock from 10 percent to 5 percent.
The circuit limit was revised from 20 percent to 10 percent earlier this week. The stock touched 20 percent lower circuit on Monday and Tuesday, and then 10 percent lower circuit for rest of the week.
Shares of the jewellery manufacturer plunged 57 percent from Rs 547.85 to Rs 233.90 in eight consecutive sessions since June 19, especially after RBI norms and fall in gold prices in international market.
While explaining the reason for carnage in the stock, SP Tulsian of sptulsian.com says a major reason for Gitanjali to hit the lower circuit and not the others is due to margin call pressure and not just business risk.
"There is no point in taking the call on the business or the recent gold curbs having imposed by the Reserve Bank of India (RBI) or on the business model. This has more to do with the margin call pressure," Tulsian said.
Earlier this month, the government raised import duty on gold to 8 percent, in its bid to curb the high current account deficit. The Reserve Bank of India announced new guidelines, which prohibit companies from buying gold on credit. Jewellers now have to buy gold by paying cash upfront.
All India Gems and Jewellery Trade Federation on Monday (June 24) asked its members to stop selling gold coins and bars to curb imports. Reliance Capital also had suspended gold sales across all its business.
Gold business accounts for 25-30 percent of Gitanjali's revenue and these measures announced to curtail gold demand will hurt revenue, the company's president Abhishek Gupta said on June 25. He said gold companies are facing immediate working capital pressures.
Gold August futures dropped by 8.6 percent or Rs 2,413 to Rs 25,598 per 10 gram on June 28 from closing of Rs 28,011 on June 19 while international gold prices fell nearly USD 200 an ounce in 10 days. Bullion also slipped below USD 1200 an ounce this week, for the first time in nearly three years.
Meanwhile, the Bombay Stock Exchange also revised circuit limit for Ferro Alloys Corporation, Next Mediaworks, Titagarh Wagons and Unisys Softwares and Holdings Industries from 20 percent to 10 percent.
The circuit limit for Cords Cable Industries, Future Market Networks, Integra Engineering India, Karur KCP Packkagings, Vishnu Chemicals, Texmo Pipes and Products and Universal Cables has been lowered to 5 percent from 10 percent earlier.
Circuit filters ensures that the price of a scrip cannot move upward or downward beyond the limit set for the day.