Demonetisation of high-value currency notes is probable to have a negative
impact on user spending, mainly for luxury items including gems and jewellery,
the gems and jewellery sector are possible to be impacted at least in the
medium-term, the rating agency added.
Though export marketplace and large diamantaires in the organized area may
not be impacted much, small and medium players, moving out local trade and source,
are predictable to feel the pinch of currency recall exercise, it pointed out.
Domestic jewellery retailers are estimated to feel the heat of this move in
the average term, though the prearranged retailers are expected to withstand
the impact of cash clean- up in a more resilient manner, and the rating outfit
maintained.
After a passive demand situation for exports of cut and polished diamonds
(CPD) from India during large part of FY15 and FY16, which had also resulted in
force on productivity boundaries in the industry, some symbols of revival in
demand have been witnessed during first half of FY17, it said as per the PTI
report.
The decommissioning of Rs 500/1000 notes may not impact the cut and polished
diamonds industry, especially as the major market for polished diamonds lies
outside India, the report said.
However, it is expected that small and mid-size diamond polishing firms
having presence in the local trade could be impacted as such trades are
targeted towards smaller unorganized jewellery players who would be starved of
cash following this step of the government, Care said.
Further, it said the unorganised segment comprises around 70-75 % of the
domestic gold jewellery market, although the share of organised jewellery
retail segment is growing at 15 per cent annually.
However, demonetisation might impact consumer spending on luxury stuff, and
domestic order for gems and jewellery is expected to be muted in the near to
medium term.
Even as quoting PAN had become mandatory for purchases above Rs 2 lakh, a
lot of small ticket jewellery buys were being made in cash as more than 60 % of
the demand is estimated to originate from cash-dependent rural India.
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