India Ratings and Research (Ind-Ra), which had recently prepared a study to assess the impact of the situation arising out of  the outbreak of COVID-19 and the resulting lockdown, on the retail jewellery sector, believes that the jewellery demand in the current quarter  ending June 30 (Q1 FY 2020-21), “has been significantly washed out”. In this period, demand is driven, in the main, by the marriage season and a couple of festivals. But the lockdown had a severely dampening effect on both.  

The consultancy expects demand for retail jewellery to “remain muted” in H1 FY21; however, “a sharp recovery” is expected in 3QFY21 due to the festive and wedding season.  Ind-Ra expects an overall 25 per cent y-o-y decline in retail jewellery revenues over FY21.

The study noted that gold jewellery demand had already slowed down in FY20 in both tonnage and revenue terms. This was attributed to the economic slowdown and increased gold prices.

“The possibility of a recovery of demand in FY21 has been derailed by the COVID-19 led lockdown and the subsequent continued economic slowdown in the country,” the consultancy said.

“Ind-Ra already has revised its FY21 GDP growth twice since January 2020 to 1.9 per cent, and a further downward revision is possible if the pandemic continues to evolve. 

This can have a prolonged negative impact on gold demand because of the possibility of a further reduction in the overall discretionary spend. The volatility in gold prices is also expected to hurt consumer sentiments.”

Ind-Ra expects muted demand outlook even after the lockdown gets lifted gradually across the country, as social distancing norms are expected to remain in place, resulting in reduced footfalls in stores. The prioritisation of spends towards essentials and low-ticket discretionary items amid a squeeze on income levels, will also keep the demand down.

All this is expected to “remain a drag” in the Q2, which is relatively lean period in a normal year. However, in Q3FY 21, Ind-Ra believes that the demand will pick up due to the pent-up weddings demand and as it is a major festival season. Moreover, looking at the meteorological department’s prediction that monsoon rainfall is likely to be normal (96 per cent-104 per cent), Ind-Ra expects a healthy post-harvest demand from the rural region to feed into 3Q demand as well.

“The expected loss of sales in 1HFY21 due to the lockdown could partially be compensated by pent-up wedding sales in 2HFY21,” the consultancy remarked. 

“Ind-Ra believes the overall revenue in FY21 shall decline by 25 per cent yoy, due to a reduction in discretionary spending amid a reduction in income due to the ongoing slowdown. However, the business from rural areas and weddings may remain resilient. From 4QFY21, sales are likely to improve due to the base effect and expected normalisation in economic activities.

Note that the post-COVID estimates are basis a gradual lifting of lockdown after mid-May 2020. Any further lockdown and prolonged impact of COVID-19 will lead to a further downward revision of estimates.”

Source: GJEPC