Bearish for TITAN, PCJEWELLER: India Gold Demand Plummets 70% Post

Indian gold demand has seen a drastic 70% reduction, falling from approximately 25 tonnes to 7.5 tonnes in the fortnight ending May 27. This sharp decline is a direct consequence of the government's decision to increase the gold import duty from 6% to 15%, effective May 13.

This development is highly significant for the Indian market as India is one of the world's largest gold consumers. A substantial drop in demand impacts the entire gold value chain, from importers and refiners to jewelry manufacturers and retailers. It also reflects the government's intent to curb gold imports, potentially to manage the current account deficit.

The immediate impact will be negative for Indian jewelry and gold trading companies. Stocks like Titan Company Ltd (TITAN), PC Jeweller Ltd (PCJEWELLER), and Rajesh Exports Ltd (RAJESHEXPO) are likely to face headwinds due to reduced sales volumes and potentially lower margins. The entire jewelry retail sector will feel the pinch of diminished consumer appetite for gold.

Traders should monitor upcoming quarterly results of jewelry companies for confirmation of sales slowdowns. Also, watch for any government policy reversals or further adjustments to import duties. The festive season demand will be a crucial indicator of whether this demand slump is temporary or a more sustained trend.

• •Gold demand fell to about 7.5 tonnes in the fortnight ended May 27.
• •Demand was around 25 tonnes a year earlier, indicating a 70% drop.
• •The government increased the import duty on gold to 15% from 6% with effect from May 13.
• •Risk flag: Potential for duty reversal if demand drops too sharply and impacts local industry severely.
• •Risk flag: Unforeseen increase in festive season demand could partially offset the impact.