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GST boost: Jewellery stocks a real gem on bourses

Titan was the highest contributor to the S&P BSE consumer durables index while PC Jeweller stood second. (Reuters)

Prices of jewellery stocks surged on Monday after the GST council finalised the GST rate to be levied on gold at 3%. The indirect tax rate for jewellery is slightly higher at 3% than existing rate of around 2% but lower than the anticipated 5% rate.

Analysts point out that at present, the total levy on gold would be around 13% of which 10% will be for customs duty and 3% for GST. This is effectively an increase of around 1 % over industry expectations of 12%.

Jewellery stocks rallied sharply led by Titan which ended 16.97 % higher at Rs 552.40 per share; the stock hit a 52 –week high on Monday in intra-day trade at Rs 566.70 a share. Titan was the highest contributor to the S&P BSE consumer durables index while PC Jeweller stood second. “If GST is effectively implemented Titan which has only 5% share of the total jewellery market in India could be a gainer over the medium term,” Motilal Oswal in a research report.

Shares of PC Jeweller surged 9.38 % closing the session at Rs 550.25 on the Bombay Stock Exchange (BSE). The S&P BSE consumer durables index ended 5.81 % higher at 16,553.02 points.

Apart from Titan and PC Jeweller, Tribhovandas Bhimji Zaveri, Tata Jewels and Gitanjali Jems were among the biggest gainers. The price of these stocks rose anywhere between 3 and 17 %.

Analysts believe the rate might result in an increase in jewellery prices of gold, silver, and diamonds, but only marginally. This additional cost will be passed on to consumers, they add. In any scenario, any additional duties is directly passed on to consumers when it comes to gold, silver, diamonds, although this is a right step by the government to streamline the bullion industry in India.

Ratings agency Icra said that the higher tax is not likely to cause any major disruption to the gold jewellery demand. As the jewellery retailer can now claim input tax credit on purchases from goldsmiths or manufacturers, Icra believes that structural shift and changing landscape to accelerate the formalisation of the industry, as retailers would prefer to source from compliant organised players to claim input tax credits on jewellery and other services availed.