Without getting into shares, stocks and other paraphernalia, here we shall try to see how gold, art works, diamonds, and precious stones have behaved in this ‘interesting times’ in India. While gold sector stands strong with analysts vouching for the metal’s reliability as an investment vehicle for small investors, diamonds and the others are not lying low either. The diamond sector has been quick to pick up the opportunity that almost fell into their laps with gold curbs by the government and began rapidly pushing the stone. The promotional aspects were upped and positioning of diamonds as an investment option was taken up in earnest by the diamond industry. In addition to aggressive, hard selling promotions, retailers across the country began ‘peddling’ diamond-studded jewellery, right fr om entry-level every-day pieces to heavy bridal sets. Not to be left behind, even the yesteryear pure gold jewellery retailers, too, jumped onto the bandwagon. Diamond jewellery, slowly but steadily, became popular and today, demand for diamond jewellery is on the rise, thanks to the country’s economy and the resulting purchasing power of people, especially the younger generation.
To delve more into the Indian psyche, one can corroborate with the general opinion that, for small investors in India, gold still remains the preferred investment vehicle, followed by diamonds, gemstones, arts etc., but not necessarily in that order. Personal preferences, too, play a major part as a decisive factor eventually. So, it not erroneous to say that gold still reigns in India and will continue to do so well into the future. Much has been said about Indian buyers’ obsession with gold since ages, and it’s true even to this day. But gradually, change is being noticed and Indians are opening up to other options. Of late, they seem to be eyeing art, diamonds and precious gemstones with equal passion. So much so, the gemstone certification business has been gaining ground and growing in leaps and bounds - an indication that diamonds and other precious gemstones are being looked at seriously as investment vehicles. Currently, it is estimated that the gemstone certification business is around Rs.500 crore in India and is reportedly growing in strong double digits. The Gemological Institute of India (GII), Indian Gemological Institute and Institute of Diamond Trade (IDT) have a national presence in India, while many others like GIA, IGI, HRD etc., also are very much in the fray, especially for diamond certification.
Nowadays, one can safely say that after gold, diamonds are perhaps the next preferred investment in India, though arts come a very close third too. The affluent in India buy stones irrespective of the economic environment as hard cash or in other words, funds are not a constraint for them. Besides that, certification is not an expensive proposition as it usually ranges from 0.1 to 0.3 per cent of the product cost. So, buyers of caraters prefer to go the expenses of certification just to be on the safe side.
However, it is imperative for investors to go through the right channel to get the authentic product. Authorized and well-known jewellers’ products can be certified by a recognized laboratory using the latest machines. For frequent buyers, purchasing diamonds would be rather easy as they are well versed in the nuances. But for a novice, it could be quite overwhelming as the stones are graded, which is rather complicated. For instance, diamonds are not only tested for carat, colour, clarity and cut, but are also tested for laser drilling, fracture filling, and CVD-origin among other things. So, it is not surprising that it is mainly in the diamond markets that maximum unscrupulous trading happens. Products with the same density, shape, cut and feel pass off as high quality diamonds, but laboratory tests easily pick up the flaws. “In this scenario, laboratories are most welcome. It will increase transparency and certainly benefit the consumer in terms of quality assurance,” says Harish Soni, Chairman, All India Gem & Jewellery Traders Federation (GJF). However, Sulish Verma, MD, Vikas Chain &Jewellery sees the changing scenario of the marketplace to be a good sign for the diamond sector in the future. According to Sulish, “Surely, gold will remain the most loved metal in our country, but exquisite and timeless pieces of diamonds are also making heavy inroads in the mindsets of the rich and affluent. Young spenders are no longer looking at buying jewellery for its intrinsic value, rather they are more inclined towards experiential buying. This is wh ere diamond as a category scores over gold.”
India is the world's biggest diamond manufacturing country with an annual export of polished diamonds pegged above $28 billion. Diamantaires in India are confident of polished diamond prices increasing and expect that the price rise will bring more liquidity in the local market. The US market has shown good pick up in the sense that polished goods in all categories seem to be moving exceptionally well. Increased orders from the USA, China, UAE and other emerging markets have been witnessed and the industry expects prices to increase between 2 and 7 percent. On the dilemma between ‘gold jewellery versus diamond jewellery’ for Indian consumers, Sulish Verma, MD, Vikas Chain & Jewellery has a clear understanding of his clients. He says, “Today an Indian connoisseur has a greater sense of style and design than in the earlier times owing to global exposure. The jewellery as a buying category is no longer confined within the domains of weddings and therefore the great surge in the demand for diamond jewellery nowadays.”
Meanwhile, how is the gold industry coping with the many curbs and restrictions set up by the government of India? While the jewellery sector is up in arms at the shortages faced at the manufacturing level, smuggling seems to be picking up. So, does it mean an exit route for gold investors, or can the medium-term investors hold? Ofcourse, it is advisable not to sell debt or equity to expand the gold portfolio, but wait if one desires till the rupee stabilizes too.
Investors in gold have not had it easy of late, what with international prices of gold falling over 25 per cent in 2013.But, luckily for the Indian investors, they were saved from heavy losses in 2013, as there was only a 2.5 per cent drop in gold prices because of the falling rupee. Surprisingly, gold prices in 2014 have not fallen further. In fact, they have risen by Rs. 1,000 since January. So, should you increase your gold holdings or reduce them? Experts are unwilling to stick their neck out because they see gold vying with the other options. Gold prices have gone down even as we read this, but will not go on a free fall anytime soon, which means it is better to wait and watch. Analysts meanwhile see international gold prices range from US$ 1,200 to US$1,600 in 2014, but will close the year at about US$1,400 per ounce. Ashutosh Sharma, MD, Shreem Jeweler explains that whatever difference that jewellers find while purchasing gold from importers, they directly charge the same to the consumers. Hence, the fluctuating Indian rupee will affect consumers directly and moreover, Indians think they are buying gold in rupees but they are actually buying gold in dollars.
According to CARE Ratings, gold prices are expected to go up to $1,600-$1,700 in the next three to four years. So, in India, for a medium-term investor, it does not make sense to sell the yellow metal, but instead hold on to it if they can. But, as mentioned earlier, it is not advisable to sell your other financial assets – debt or equity – to buy more gold. Because, one predicts interest rates likely to stay steady. Even if it falls over the next year, returns from debt will fall. Investors however will gain in terms of higher capital gains from their investments. With the political scenario set to change, the outlook on the equity market is quite uncertain, as there is no clarity on who will form the next government.
Meanwhile, investment experts are clear on one thing. If you have overloaded your portfolio with either gold coins or exchange-traded funds, it is better to liquidate gold and raise money. According to financial analyst, if one is making good money on their gold investments, it could be a good opportunity to exit.
Given that returns on gold for Indian investors are largely dependent on the rupee and demand as well, there are too many variables for the investors who want to play it safe. But, good days are here as inflation, rupee and the current account deficit have been reined in for the moment. However, slow growth continues to bother policy makers and experts alike, stock markets are trading in a narrow range, though at a striking distance from their all-time highs, uncertainty over elections is keeping investments at bay, with people holding on to their monies for safe keeping. Ashutosh Sharma of Shreem Jeweler feels that Indians love for gold as an investment vehicle is strong as ever.” Many customers at our stores have purchased more gold jewellery sets than diamond sets as compared to last year. Even our regular customers, who would otherwise purchase diamond sets, are now purchasing gold jewellery sets. Gold is synonymous with savings and security for many Indians. Even after the shortage of gold and hike in price of gold, consumers have still opted for gold over diamond,” he says. Ashutosh’s accurate picture can be corroborated with many reports in the local media about Indian buyers expressing their preference to gold jewellery during Diwali last year, despite price rise of gold. Precious stones and artworks are favourite for some investors, who like to take the ‘roads’ less taken. This collection of art works as investment is picking up as a trend with connoisseurs, who seek the unusual and see value for their uniqueness and everlasting intrinsic worthiness.
In India, economy seems to be poised for better growth as of now. The International Monetary Fund (IMF) recently said that India will grow at 4.4 per cent in fiscal 2013-14 as against the 3.8 per cent estimated earlier, based on an improved second half, thanks to the monsoon. Despite the figures being moderate, the encouraging part is that India is growing, albeit at a slow pace. According to a recent report from Moody’s, India's economy has stabilized in recent quarters, though its GDP growth remains well below potential. Downside risks have receded. The rupee is less vulnerable to US Fed tapering than it was in 2013. This augurs well for the country and the precious industry in India as well.
Analysts are also of the opinion that Indian economy will slowly improve across 2014, but warn that it may not hit potential until well into 2015. The elections in the month of May offer the chance for better government and should lift business confidence. A wait and watch situation here, again. The World Bank has projected India's growth at over 6% for FY15; and IMF sees FY15 growth at 5.4 per cent and 6.4 per cent in FY16 as well. The country’s policy makers also have similar projections for FY15. So, for all practical purposes, one has reasons to believe that the Indian economy has started to turn the corner, albeit slowly, after a two and a half years of slow growth. Stabilized Moody’s report says “India’s economy should perform better than in 2013 as growth rate as stabilized, but it will be a long time before India's economy is growing back at potential." Alas, the worst may be over for the Indian economy and the future looks bright. Indian exports have already started to lift and show promise. With fewer downside risks, a more competent RBI governor, and the prospect of better government after the May election, better growth is expected in 2014 in business and investor confidence. The third quarter economic growth was better than expected. Economists are also positive on the India story. Is India shining?
Thanks to the success of the recent Hong Kong International Jewellery Show as well as the GGJF in Dubai, Indian diamantaires are looking forward to better days for the gem andjewellery industry on the whole. The diamond industry is expecting the polished diamond prices to increase between 2 and 7 per cent in the near future. There has been a spectacular growth in the sales of jewellery and loose diamonds at the Hong Kong Show, indicating renewed confidence of buyers from across the world, especially the USA and China. According to a diamantaire, the polished diamond market is on an upswing currently due to the grand success of the Hong Kong show. The Indian industry people, who were waiting for the show since the start of 2014, feel that the polished diamond orders have increased from overseas buyers this time around.
In conclusion, as of today, investment vehicles in India may differ in different sections of the Indian society at different times. Even in the event of life style and wealth creation scenario changing in the country, ‘investing in gold’ will remain a constant for generations to come. It goes without saying that diamonds, precious stones, art etc., will follow not far behind, vying for the second place.
Aruna Gaitonde, Rough&Polished, India
