Indian Jewellery Shares Decline Following Prime Minister's Call for Reduced Gold Consumption

India's Jewellery Retailers Suffer Amid PM Modi's Appeal to Curb Gold Purchases

Mumbai/Bangalore - Shares of Indian jewellery retailers plummeted on Monday as investors and industry executives grappled with the implications of Prime Minister Narendra Modi's call to reduce gold purchases and ease pressure on India's foreign exchange reserves.

The remarks sparked a sharp selloff in jewellery stocks, with Kalyan Jewellers India falling 9.27%, Senco Gold slipping 8.18%, and Titan Company declining 6.73%. This significant underperformance contrasts with the broader market, as the benchmark Nifty50 closed 1.49% lower on Monday.

Industry executives warn that the pressure may extend beyond stock prices, as rising gold prices may necessitate more working capital for jewellers to maintain inventory. Chartered accountant Surendra Mehta, spokesperson of India Bullion and Jewellers Association Ltd, cautioned that banks may prefer to keep themselves away from funding any jewellery company.

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The industry's concern is substantial, given that the gems and jewellery sector employs more than 5 million people directly and indirectly, according to industry estimates. Organized retailers account for roughly 37-42% of the market.

The government's concerns are rooted in India's widening import burden. India typically runs a current account deficit due to its significant imports of crude oil and gold. In FY26, crude oil and petroleum imports stood at approximately $174.9 billion, accounting for roughly 22% of total imports, according to the commerce and industry ministry data. Gold imports were estimated at nearly $72 billion during the year, accounting for 9.3% of the total import bill.

Retailers argue that demand can be sustained without significantly increasing imports. Jos Alukkas, chairman of Kerala-based Jos Alukkas, suggested that the industry could rely more heavily on gold exchange programmes, where consumers trade old jewellery for new purchases. "Families can exchange their old gold for new designs, celebrate every occasion, and not add a single dollar to the country's import bill," Alukkas said.

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This transition is already visible among organized retailers. In its third-quarter earnings commentary, Titan said more than half of its jewellery sales now come from gold exchange programmes. Retailers have also increasingly pushed lightweight jewellery, lower-carat products, silver jewellery, and gemstone offerings as record gold prices dampen demand for traditional purchases.

The price for 10 grams of 24-karat gold is approximately ₹152,000-₹152,300, sharply increasing inventory costs for retailers. India is the world's second-largest gold consumer after China.

"If these trends continue, India's annual gold imports could potentially decline to nearly 550 tonnes, compared to the historical average of around 700 tonnes," said Suvankar Sen, managing director and chief executive officer of Senco Gold & Diamonds.

Analysts also say reducing India's dependence on physical gold will remain difficult. "Investors using gold for portfolio diversification have gradually shifted toward financial products such as gold ETFs, sovereign gold bonds, and gold mutual funds," said Abhishek Kumar, founder of financial advisory firm SahajMoney.

However, people buying gold as a store of value or emergency asset have not shifted meaningfully away from physical gold, particularly in rural India where gold continues to serve as collateral and a household safety net.

Retailers are also bracing for the possibility of higher import duties. "Given the Prime Minister's commentary, there is a possibility of an increase in gold import duty going forward," Sen of Senco Gold said. India currently imposes an effective 6% import duty on gold, in addition to 3% goods and services tax at the point of sale. Before July 2024, import duties were close to 15%.