Despite the pressure on volumes and margins caused by record-high gold prices, organized players with sound balance sheets, cutting-edge goods, and growing retail and e-commerce reach will outperform markets in the medium run.
Despite gold prices hitting all-time highs, jewelry inventories have been under pressure in recent weeks, underscoring the short-term weakness of demand and potential impact on business profitability. However, experts believe that organized players are strong contenders for medium-term outperformance because to their potential for long-term expansion.
What caused the fall?
Despite gold prices hitting all-time highs over the last month, jewelry stocks have been under pressure. Customers are choosing lighter or lesser caratage gold items as a result of the spike in gold prices, which has reduced demand for gold jewelry.
The retail jewelry business has seen lower volumes as a result of customers being cautious due to the record-high costs of gold. Higher gold prices also put more strain on jewelry merchants’ working capital needs, which affects stock performance and adds to margin challenges. High gold prices, according to analysts, tend to deter discretionary spending.
According to Surendra Mehta, national secretary at the India Bullion and Jewellers Association, the level of demand for ornaments over the three-week shopping season is expected to drop by 27% from a year ago, according to Bloomberg.
Jewelers have also seen declining volumes. According to Colin Shah, MD of Kama Jewelry, “sharp rises [in gold prices] have reduced traditional retail spending in the short term.” Due to cost, consumers are increasingly choosing lightweight jewelry in the 14K–18K range. At the same time, gold bars and coins continue to draw investors.
The justification for medium-term investments
Nevertheless, the long-term picture for jewelers is still favorable in spite of the decreased volumes. Demand for heavy, traditional jewelry will remain high throughout the wedding and celebration seasons.
The brokerage also included While high gold prices can occasionally be difficult to deal with, organized players are becoming more creative by offering lightweight jewelry, easy installment or old gold exchange plans, leveraging e-commerce (which has a mere 6% penetration rate), and expanding their stores into unexplored markets in Tier 2, 3, and 4 areas, all of which ensure growth that is higher than the industry average.
Due to its widespread purchasing across economic strata, experts see jewelry as a mainstay in the discretionary sector. They anticipate that organized players will continue to be the major benefactors of the growing number of people with high and elite incomes.
Increases in gold prices also raise a jeweler’s working capital needs, which puts pressure on disorganized jewelers to store less inventory, more basic jewelry, and less value-added or better-designed jewelry, all of which have a lower inventory turnover.
Additionally, smaller independent jewelers have a harder time getting finance since they often trade in cash and do not completely declare their turnover in their accounts. Conversely, we believe that organized players with stronger balance sheets should not be under pressure and should continue to provide higher-value items and a greater choice of inventories.
“They have had trouble obtaining bank funding due to the recent implementation of transparency requirements and rules, since banks and financial institutions are still hesitant to lend,” Nomura said.
Additionally, studded jewelry is becoming more and more popular at this period, using less gold and resulting in smaller ticket sizes. Jewelers also profit from this change since the margins on studs (20–35 percent) are much larger than those on plain gold jewelry (10–14 percent).
Watchable stocks
Brokers maintained their optimism in Titan and Kalyan Jewellers India, arguing that solid profits growth and value comfort exist in the equities despite the dramatic increase in gold prices.
ICICI Securities recently raised Kalyan Jewellers from “add” to “buy,” citing a substantial margin of safety due to a 35% stock price correction over the previous 12 months. Despite the fact that gold prices have increased by 15% in the last two months, the brokerage said, “We anticipate Kalyan to produce good SSSG in FY26, driven by robust seasonal and wedding-led demand.”
Demand preparation for Navratri is expected to balance off the challenge posed by the high base of Q2FY25 (37 percent revenue increase after the customs duty drop). According to the brokerage, it is also accelerating the launch of lighter, lower carat jewelry, making everyday purchases more cheap.
Regarding Titan Company, Titan’s stock price has fluctuated over the last two years, falling 25% short of the Nifty. The stock offers reassurance in terms of value since it trades one standard deviation below its five-year norm.
Concerns about lab-grown diamonds (LGD) possibly undermining its lucrative studded jewelry industry, increased competition from organized, newly-funded companies, higher gold costs limiting volumes, and a slowing of profits growth are the reasons for the lackluster result.
Nomura pointed out that Titan’s margins were under considerable pressure even though the company had a good sales CAGR of 22% during FY23–25. During the same period, Titan’s operating margins fell 185 basis points.
Nomura thinks Titan’s jewelry sales in the second quarter would be poor.
In any case, after Q2, the most of the firm’s challenges will have passed, and brokerages anticipate a rebound in H2FY26, driven by demand for weddings and holidays as well as shop openings.