Gold Stocks To Glitter? Here's How Customs Duty Cut Will Impact Gems & Jewellery Stocks; Who Wins Big?

Finance Minister Nirmala Sitharaman made a host of cuts for gold and silver bars, which is likely to be a big boost for gems and jewellery companies with unhedged gold. Some of them to win big time from the Budget announcement are Tata Group-backed jewellery giant Titan Company and Senco Gold. Also, the price of gold is expected to witness a downward trend, while demand is likely to surge.

In Budget 2024, Sitharaman announced that BCD/AIDC on gold and silver bars is reduced to 5/1% from 10/5%. Hence, total tax rate on gold (inc. 3% GST) will now be 9% vs. 18% earlier. Rate cuts came into effect immediately. Also, the holding period for the classification of gold (asset) held as either short-term or long-term has been reduced from 36 months to 24 months.

Further, the finance minister announced a reduction in customs duty on gold and silver to 6% and platinum to 6.4%. As per HDFC Securities, this will give a boost to jewellery consumptions.

How do Budget announcements on bullion and silver impact gems and jewellery companies? HDFC Securities explains:

1. Reduction in the BCD/AIDC rates aids gold price correction (theoretical savings ~9%) which may aid pent-up demand from Q1.

2. Jewellery companies with unhedged gold will be the most impacted in terms of margins followed by companies with higher GML.

3. Organized & hedged players could benefit from a reduction in smuggled gold as the arbitrage between organized and smuggled trade reduces.

4. Franchisees (FOFOs) of organized jewellers may be impacted. The impact may differ based on the level of hedging of the franchisees.

5. The impact of BCD/AIDC reduction on the making charges will be

6. Gold (asset) with a holding period of more than 24 months will be classified as a long-term asset.

According to the brokerage, the BCD move is positive for organized Jewellery companies with a larger hedged portfolio. At advantage will be Titan and Senco.

With jewellery consumption to see a big jump, gold stocks listed on the BSE and NSE will also witness a similar trend. Other developments in the Budget are neutral to positive for jewellery companies.