Short-term outlook for gold jewellery industry credit negative ahead of Akshaya Tritiya due to coronavirus, lockdown

The coronavirus outbreak and the lockdown ahead of Akshaya Tritiya is a credit negative for the gold jewellery retail industry in the short term, according to Icra.

Gold jewellery buying is considered auspicious during Akshaya Tritiya, which falls in the last week of April this year.

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Over the last two years, the domestic gold jewellery retail industry has been affected by factors like weak consumer demand amid slowing economic growth, rapid rise in gold prices and faltering rural output, regulatory policy interventions and cautious lending environment, Icra said in a report.

“Given this background, the widened outbreak of COVID-19 and subsequent lockdown, ahead of the critical Akshaya Tritiya season is a credit negative for the gold jewellery retail industry in the short-term,” it added.

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The lockdown has resulted in closure of retail stores across the country. Besides there has been supply chain disruption with restriction on movement of non-essential goods, Icra added.

“As the stores are currently non-operational and recovery in demand is likely to be slow and gradual given that jewellery is a non-essential product and consumers typically defer their discretionary spends, jewellery retailers shall witness sharp moderation in footfalls over the next few months. Especially, sales during Akshaya Tritiya, which falls in the last week of April 2020, shall witness considerable impact,” Icra Vice President K Srikumar said.

In addition to industry revenues being impacted, relatively stable fixed costs in the form of employee payouts and rentals shall affect the earning profile of the retailers, he pointed out.

“Any invocation of force majeure clauses given the above adverse impact in the rental agreements remains to be seen. Nevertheless, over the long term, gold jewellery demand shall continue to benefit from the cultural underpinnings, evolving lifestyle, growing disposable income, favourable demographic dividend and the growing penetration of organised sector,” he added.