The regulatory curbs on the sector have left jewellers grappling with tough supply conditions and tight demand.
The sharp rise in the premium on domestic gold, as a result of the higher import duty (10 per cent), is sending non-resident Indians, who account for 15-20 per cent of the jewellery sales, to make their purchases outside. There the jewellery can be procured at a 10 to 25 per cent discount to India prices.
A spokesperson of Tara Jewels said, "Our company has decided to re-strategies the Indian business to adopt to the regulatory framework."
"The company proposes to continue to expand its business through an asset-light franchise and shop-in-shop models."
Said Aditya Mathur of Citi Research, "Store-opening targets are being pushed out. Tribhovandas Bhimji Zaveri would take longer to reach its 57-store target by 2015 (currently 27 stores), whereas PC Jeweller could be delayed six months to achieve its 50 stores by March 2014."
"For Titan, we estimate an increase of 10 per cent year-on-year space increase in two years versus a compound annual growth of 25 per cent year-on-year. The environment is tough. Last quarter, there was a 10 per cent decline in footfall for Titan's jewellery business with 20 per cent of space."
Said Haresh Soni, chairman of the All India Gems and Jewellery Trade Federation, "There is a liquidity crunch and neighbours are flourishing with business from Indians."
Somasundaram PR, managing director (India), World Gold Council, said the picture would look better in the second half of 2014. "Even if you consider 140 million have come above the poverty line between 2005 and now, the first asset class they would perhaps put their money in is gold. Even if they buy 5g, it will make a huge difference to demand." WGC estimates demand in 2014 at 1,000 tonnes. Experts said if the restrictions lasted a year, the sector may see the larger firms buying the smaller ones.