Mumbai, Feb, 13 One of the significant export earners for long years, the Indian gems and jewellery sector is currently facing the adverse effects of global economic slowdown. The industry has to fight slump in demand, inventory build-up as also pressure on receivables and operating margins.
Demand slowdown is more pronounced in advanced economies such as the US and Europe (traditional markets for luxury goods), and to a lesser extent in Asia. This has resulted in significant inventory build up and major postponement or cancellations of orders across the sector which in turn has impacted liquidity, Fitch Ratings said in its Indian Gems and Jewellery Sector 2009 Outlook.
Rough diamonds
The Indian domestic industry has mostly stopped fresh purchases of rough diamonds and cut back on ongoing production, the report pointed out adding many units have shut production for days together (15-40 days).
Suggesting that sourcing of rough diamonds remains the critical differentiating factor, Fitch said companies with strong sourcing relationship are in a better position than others even as mines cutback output.
Moreover, cross-currency risks have also multiplied during the ongoing exchange rate volatility.
No wonder, the smaller players are more impacted by the current downturn which could lead to consolidation in the industry, according to the report.
Fitch expects the domestic gems and jewellery sector to remain under pressure over the short-to-medium term, with possibility of a recovery only from 2010. This of course is in line with generally expected recoveries in key consuming markets.
While the near term will be marked by severe liquidity pressures, the outlook over the medium term was negative, Fitch asserted.
Source : BusinessLine