This year, gold prices have taken a remarkable leap, driven by escalating worries regarding the economic repercussions of former U.S. President Donald Trump’s tariff strategies, anxieties about a potential slowdown in the American economy, a decline in the dollar’s value, and heightened buying from central banks. With spot gold prices soaring by as much as 17% over the last three months, investors are turning their attention to jewellery stocks, traditionally seen as benefitting from rising gold prices. However, the relationship between gold and jewellery stocks is nuanced, reflecting both opportunities and challenges.
The Impact of Rising Gold Prices on Jewellery Stocks
While surging gold prices can initially enhance profit margins for jewellery companies through inventory gains, prolonged high prices may dampen consumer demand. In recent months, despite the overall increase in gold prices, several prominent jewellery stocks have faced declines:
- Titan Company: Down 6%
- PC Jeweller: Down 15%
- Kalyan Jewellers: Down 34%
- Senco Gold: Down 48%
This trend raises a critical question for investors: what is the best strategy for navigating jewellery stocks amidst fluctuating gold prices?
Long-Term Outlook for Jewellery Stocks
Experts maintain a cautiously optimistic perspective regarding the jewellery sector. Narinder Wadhwa, Managing Director and CEO of SKI Capital Services, emphasizes the enduring cultural significance of gold in India, particularly during weddings and festivals. This cultural backdrop ensures a consistent demand for jewellery, even as prices climb.
Wadhwa notes that higher gold prices can lead to beneficial inventory gains for jewellers, particularly for established brands with strong supply chains. As consumers shift from unorganised retailers to organised brands, this transition bolsters the growth potential for publicly listed jewellery companies.
Key Factors for Investment:
- Strong inventory management
- Robust cash flow
- Expanding market share
Consumer Demand and Market Pressures
On the flip side, Ajit Mishra, Senior Vice President of research at Religare Broking, warns that rising gold prices may depress consumer demand, especially in the mass market. Buyers might delay purchases or opt for lighter jewellery designs, which could strain jewellers’ working capital and reduce margins. Companies like Titan, which hedge a significant portion of their gold exposure, are better equipped to navigate these challenges.
Mishra advises investors to focus on jewellery firms with:
- Solid balance sheets
- Diverse product offerings
- Effective hedging strategies
Recommended Jewellery Stocks
Among the companies highlighted by Wadhwa, Titan Company stands out due to its strong brand identity and nationwide presence. Kalyan Jewellers is also seen as a promising option, benefiting from aggressive expansion in southern markets. Senco Gold is recognized for its strong regional presence and focus on higher-margin wedding jewellery.
However, some analysts, including Shreya Hanchate from Bonanza Group, caution that the current market reflects a need-based purchasing trend, primarily for weddings. Increased instances of exchanging old jewellery for new purchases indicate a shift in consumer behavior.
Investment Strategy
For those looking to invest in jewellery stocks, it’s prudent to adopt a long-term strategy. Experts suggest considering companies like:
- Titan
- Kalyan Jewellers
- Thangamayil Jewellery
- Senco Gold
Additionally, diversifying investments and staying alert for price fluctuations can be beneficial.
In summary, while gold’s ascent presents opportunities, the jewellery market’s complexities require careful navigation. Investors should prioritize companies that demonstrate resilience and adaptability to thrive in this evolving landscape.
