Gold and Silver ETFs Surge Up to 6% Amid Rise in Import Duty, Supporting NBFCs Like Manappuram and Muthoot Finance
India Raises Import Tariffs on Gold and Silver Amid Economic Stress
The Indian government has taken a significant step to ease pressure on foreign exchange reserves by raising import tariffs on gold and silver to 15% from 6%. According to government orders issued on Wednesday, this move aims to reduce precious metal imports, support the rupee, and narrow the trade deficit.
The hike in tariffs comes after Prime Minister Narendra Modi's appeal to citizens to avoid gold purchases amid rising economic stress linked to the ongoing Middle East conflict. The decision is expected to have a positive impact on gold and silver exchange traded funds (ETF) as costlier physical imports could steer investors toward ETFs and boost fund asset values.
Domestic Gold and Silver Prices Surge
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Domestic gold futures jumped 7.2% to Rs 1,64,497 per 10 grams, while silver futures surged 8% to Rs 3,01,429 per kg. The rise in prices is largely attributed to the increase in import tariffs, which instantly lifts domestic spot prices.
ETFs and Gold Financier Stocks Benefit
The hike in tariffs is positive for gold and silver ETFs, with Nippon India Gold ETF, Tata Gold ETF, HDFC Gold ETF, and ICICI Prudential Gold ETF jumping 4%-6%. Similarly, Tata Silver ETF, Nippon India Silver ETF, and HDFC Silver ETF also climbed between 4% and 6%. Gold financier stocks like Manappuram Finance, Muthoot Finance, and IIFL Finance rose up to 8% as higher per-gram gold rates boost the overall value of gold jewellery held as security by lenders.
Jewellery Companies Face Pressure
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However, jewellers such as Titan Company, Kalyan Jewellers, and Thangamayil Jewellers lost 1.5%-6% due to the hike in tariffs. The increased domestic gold prices could weaken consumer demand, particularly for discretionary purchases like coins, medallions, and jewellery. On the other hand, gold financing firms are likely to benefit from higher collateral values of gold loans.
| Company | Domestic Gold Price (Rs/10g) | Domestic Silver Price (Rs/kg) |
|---|---|---|
| Titan Company | -3.5% | -4.5% |
| Kalyan Jewellers | -5.5% | -6.5% |
| Thangamayil Jewellers | -4.5% | -5.5% |
| Manappuram Finance | 6% | 6% |
| Muthoot Finance | 7% | 7% |
| IIFL Finance | 8% | 8% |
The hike in customs duty can reduce official bullion imports, supporting the Indian rupee and current account deficit. However, slow jewellery demand may increase chances of smuggling.
Investor Takeaway
Investors may consider gold and silver ETFs as a potential hedge against inflation and currency fluctuations.
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