Gold Prices Soar 70% in a Year, But Jewellery Stocks Lag Behind: What's Next for Investors?

Despite gold prices soaring over 70% in a year, the top 10 gems and jewellery players in India are struggling to keep pace, with eight of them languishing in the red. This sharp divergence has left investors wondering what's driving this trend and what's next for the jewellery sector.

Reasons for the Divergence

Analysts have highlighted three key reasons for the divergence between gold prices and jewellery stocks. Firstly, higher gold prices increase raw material costs and working capital requirements, putting pressure on margins. Secondly, weak volume growth due to expensive gold prices leads to lower sales volumes and reduced operating leverage. Lastly, rising interest costs and tighter liquidity conditions affect jewellers with higher debt and inventory funding needs.

Impact on Jewellery Demand

Record-high gold prices are influencing buyer behaviour, but the impact is nuanced. Some consumers are waiting for prices to soften, while others believe prices may rise further and are proceeding with purchases. Cultural factors, such as weddings, continue to provide a strong cushion, and there is steady demand from consumers who view gold as a long-term store of value.

Outlook for Jewellery Stocks

Despite near-term volume headwinds, analysts remain constructive on the jewellery sector, driven by a sustained structural shift towards organised players. The organised jewellery market is expected to expand at a robust CAGR of 19.4% over the next few years, driven by mandatory hallmarking, deeper penetration of branded retail formats, and rising consumer preference for trusted organised brands.

Investment Advice

Investors are advised to adopt a selective and wait-and-watch approach, betting on stronger players with solid brands and balance sheets. Titan remains a top pick from the sector, with a strong brand, better pricing power, and efficient inventory and hedging practices. Other B2B players like Shanti Gold International and Shringar House of Mangalsutra are also positive, with target prices of INR 350 and INR 295, respectively.

Remember, this is a perspective, not a prediction. Do your own research and consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.