Jewellery stocks were down a second consecutive day on Thursday, as traders fear a fall in sales following stringent guidelines set by the government to tackle the cash flow into gold. This is in spite of the BSE sensitive index (Sensex) gaining 207.89 points to 19,570.44 and Nifty closing 79.64 points higher at 5,908.95.
While the share price of Winsome Diamonds and Jewellery Ltd on Thursday fell 5.2 per cent to Rs 24.50, that of Goenka Diamond and Jewels Ltd plunged 2.9 per cent to Rs 31.75 after a steep 4.6 per cent decline the previous day.
The inverse movement of jewellery stocks is attributed to the recent steps taken by the government to restrict the fund flow into gold. However, Umesh Parekh, managing director of Kolkata-based retailer Shree Ganesh Jewellery House, does not see any unusual movement. "The stock movement is determined by market forces. We don't see any unusual things happening in the jewellery industry which can affect the stock movement," said Parekh.
Meanwhile, after raising the import duty significantly from less than one per cent about 15 months ago to six per cent now, the government has been working on options to curb gold sales. The major aim of the government is to bring the burgeoning current account deficit under control for which gold is considered to be a major contributor.
Also, the anti-money laundering law, passed by Parliament in December 2012, mandates jewellers to seek know-your-customer (KYC) details from those whose cash bill surpasses Rs 50,000. The guidelines, made applicable for the banking and financial sectors in December, spread across the real estate and jewellery sector on February 15, 2013.
Earlier, the government had asked jewellers to seek a copy of a permanent account number (PAN) from the customer whose bill crossed Rs 2 lakh. Titan Industries
, the industry leader, has already said the company had lost some business in implementing the PAN requirement. The positive sentiment in the second half after abysmally low sales in the first half of this financial year may could affected.
Jewellery retailers, however, are awaiting guidelines from the government to implement the provisions of the recently amended Prevention of Money Laundering Act.
According to Bacchraj Bamalwa, chairman of the All India Gems and Jewellery Trade Federation, the government had said a new set of rules would be framed for jewellers, presumably with a higher benchmark limit. But these are yet to be framed. Hence, the jewellers are going on as usual. No new KYC is being called for, even if the bill value surpasses Rs 50,000.
"It's impractical, as even a 15-gramme jewellery purchaser would have to submit all details. Hence, we are waiting for the government's guideline to go ahead. Supposing the rule comes with a Rs 50,000 limit, we will represent to the government to work out a practical solution," added Bamalwa.
Meanwhile, a study by Edelweiss Securities showed jewellery stocks had weakened by around 25 per cent from peak levels on fear speculation of regulatory policy changes to curb the surge in gold demand.