‘Diamonds are a girl’s best friend’- this familiar phrase will soon be a thing of the past or so it seems. And, going sentimental and ‘romancing the stone’ is not anymore as lucrative as it looked some years ago as well. Instead, today it’s more about ‘profit margins’ fr om offering diamond as a ‘hardcore commodity’; and therefore as ‘investors’ best friend’. This is more in line with the astute diamond businessmen of today.
Attempts are being made to turn diamonds into a commodity that would be available to investors in the way that gold has been traded through funds on exchanges in many countries. At present, trading in diamonds is limited in the United States and of course among merchants in places like Manhattan’s diamond district. With gold losing its luster, will diamonds be the new gold the world over?
For many reasons than one, this trend of ‘commoditization of diamond’ has not yet picked up in India. However, with the Indian diamond industry turning to ‘corporatizing’ in a big way and diamond prices more transparent than ever before, there is the probability somewhere in the future. It is just a question of time before diamonds go the gold way. Once diamond prices are fixed and publically accepted a la gold, it will not be long before they are traded like any other commodity.
The Indian diamond industry is meanwhile looking forward for polished prices to increase, which will reflect in a better future for diamond as an investment option for loose as well as jewellery consumers, while trading on exchanges can wait. Unfortunately, unlike gold, diamonds currently have no spot price or conventional market, besides jewellers. But, the advantage of diamonds is that they are real and can be bought, sold and owned in the physical market. Besides, caraters are already graded and rated which will make them easy to trade. And as they are also etched with numbers, they can also be easily tracked.
It is a known fact that nowadays artworks prices are shooting up and is lapped up by Art Connoisseurs. The reason behind this is the readiness of Art lovers to buy them based on the belief in the everlasting value of Arts. The same thing could happen to high-end diamonds, for people's faith in their art-matching everlasting value is not yet lost. But what has gone wrong along the way? Are diamonds losing their mystical value in the minds of people? Yes, they have as far as some diamond industry members go. But according to Vikram Shah of C. Mahendra, Belgium “In the last 10-20 years, in US$ terms avg. diamonds value has increased in value by 2% per annum. 20 years back US$/INR was 30 which is now over 60. So diamond are still today high value investments and in every way the returns are higher than the FD’s in the buyer’s country, plus the purchaser will benefit by wearing and celebrating the diamond. We at Ciemme have a buyback policy on our ‘LOTUSMARK’ branded diamond. Regarding Art work, only work done by a handful of artist has and had equal footing, but every diamond has appreciation if bought and sold fr om trustable jewellers”.
Diamond traders have always found fluctuating diamond prices the biggest hurdle while trying to push diamond as an investment option to the consumers. So, what if the diamond product range below high-end goods could be backed by a financial consortium ready to buy all kind of diamonds and thus making people sure they have something in their hands always stable in value. This could push others to buy diamonds, thus opening a possibility for higher polished prices. But, there are not many takers for this thought as it is alien to the Indian industry; any change takes time to get absorbed. “By hoarding diamonds the value cannot be pushed up. What is the incentive available to any financial consortium to buy and store diamonds thereby adding to its cost, in the expectation that their prices will increase giving them profits?” asks Ghanshyam Dholakia of HariKrishna Exports. Vikram Shah, meanwhile, sees better days for diamonds and says, “We do buy back our branded diamond jewellery. We do that only because we have confidence in our product. Of course, if consumers go to the right companies to make their purchases, they will have more than a stable value. In India consumption of diamonds is increasing and if communicated well about the stability in prices, it would increase more.”
Nowadays, there are actually two schools of thoughts on how to put the diamond industry back on the fast track. While one advocates the cartel-type distribution system, the other propounds a free market or tender system. For this HariKrishna’s Ghanshyam Dholakia has an interesting take, “In a cartel type system big players are able to get goods and distribute them to smaller players. In a tender system also, even though theoretically it’s feasible, smaller players do not stand a fair chance due to lack of financial muscle. In the present scenario wh ere there are large number of smaller players, it is preferable that majority of goods are distributed through the cartel system. The only difficulty in cartel system is that the miners are not able to maximise their earnings. While the interests of the miners are to be kept in mind; and if the Industry has to survive the smaller players should have a room wh ere they can have sufficient breathing space”.
On the same topic, Vikram Shah is of the opinion that, “Cartel rough distribution has been in the industry for over a century now. There are just a handful of serious/major mining companies in the industry. Cartel really works well in the crisis as miners are forced not to sell by reducing prices or to sell with high profitable prices. This protects the manufacturers from pressured purchases and helps increase their profitability. But during bullish markets, miners increase the prices to the maximum until the manufacturers stop buying due to heavy losses. Distribution system if done fairly on merits of the company than it can do wonders. Tender systems are also very important & every company must sell minimum 40% of their goods by tender this will give a clear and fair picture of the market. Again during crisis, by tenders there are only 20% of the buyers on the market and during bullish markets every Tom, Dick and Harry wants to buy every rough stone available. So both systems are equally important. Tenders have been gradually increasing and they give an opportunity to smaller company to secure their supply, but this supply is not consistent as in the distribution”.
The much-discussed need for advertising, like generic advertising promoted by the WDM to boost the image of diamonds received mixed reactions from the Indian diamond industry. Ghanshyam Dholakia’s opinion is that “Marketing & Advertising have been one of the major areas of high Investment for any company, whose returns are visible only in long run. Generic advertising have always boosted the image of diamonds as is evident from what DTC did for almost last decade in the Indian market. Diamonds have a very small share in the overall Luxury market and this need to increase. Generic advertising definitely creates a demand for a particular product or a service... in our case its diamonds. A committee/board should be formed who would do generic marketing & advertising for the Indian and world Diamond Industry at large. All players, big and small, should come together for this cause in their own interest”. Vikram however differs when it comes to the need for generic advertising for the diamond industry. He feels, “I think the Diamond market players currently are seeking remedies to boost the image of their brand and not on generic advertising as we all know a well-established brand can command a good premium.”
Diamond financing to companies, especially SMEs, has been hit severely in the last few years and the lending banks in India are more than wary at present, given the payment defaults of some companies. But the scenario worldwide is no different, given that the world diamond industry is now losing one diamond bank after another. It is time that the industry focuses on an in-depth analysis of its financial resources, bringing them all together to solve the key problem. Ghanshyam Dholakia agrees the situation is not rosy in India but has a positive outlook for the Indian industry, “We agree that the financial scenario in the diamond industry is not bright and encouraging. We are going through a tough time now and believe that like in any business cycle, a tough time is crossed only to climb another crest.” Vikram however rues, “Unfortunately this is the fact. But the fault is not of the product, it is from all sides, even the bankers are equally responsible. If you see the past NPAs the banks have faced, they are not due to core diamond business. But it due to businesses, who in greed, invested in other speculative business and tried to be jack of all and master of none”.
All said and done, India is now on the verge of entering a rather good space; despite the many challenges it is facing at present. With the World Bank (WB) projecting India’s economy growth of over 6 per cent in 2014-15 and 7.1 per cent by 2016-17, diamond industry can hope for better days as the global demand recovers and the domestic investment increases as well. The WB report projects the global economy to strengthen this year, with growth picking up in developing countries. The high-income economies are also expected to be turning the corner after the global 5-year financial crisis. With this background, the Indian diamond industry is hoping to tide over difficulties and achieve greater heights in the years to come.
Aruna Gaitonde, Rough&Polished, India
