Rapaport Magazine

Crisis, Confusion or Opportunity?

By Zainab Morbiwala
Despite recent news reports on the instability of the Indian diamond industry that suggest it is in crisis, the industry appears to be going through more of a confusion phase than a crisis phase. The majority of the industry players reject the crisis theory and insist, in fact, that the industry is showing signs of improvement. The biggest sign of positive movement they cited was in terms of orders from the U.S., Europe and Southeast Asia following the India International Jewellery Show (IIJS). At press time, all expectations were centered on the Hong Kong show, with the hope for additional business to be done there.

Sanjay Kothari, vice chairman, Gem and Jewellery Export Promotion Council (GJEPC), said, “The next three months will be very crucial for the industry and from what I am seeing, there is going to be an improvement in demand. This can be attributed to the fact that retail in India is booming and many new jewelry showrooms are opening across the country, which automatically will create demand for diamond jewelry. The market sentiments are good right now and the U.S. economy is showing some positive signs, too.”

INVESTMENT DECISIONS
Other recent news reports alleged that some Indian diamond industry players have been using loan proceeds that were originally borrowed for their diamond businesses to invest in real estate. This has created some amount of unrest in the industry because it not only signals a lack of confidence in the diamond industry by diamantaires themselves, but such illegal misuse of loan proceeds also leads to a very negative image of the industry as a whole.

The problem is that diamond loans are mostly borrowed as export financing and therefore qualify for the London Interbank Offered Rate (LIBOR) from the banks, which is approximately 5.5 percent to 6 percent cheaper than loans extended by banks for real estate investments.

Coming down heavily on the practice, Pratish P. Mehta, partner, DiaCentre, said, “This is a self-created crisis by a few industry colleagues who are using bank financing to invest in real estate to enhance their personal wealth when, in reality, this money was given to them for their diamond business. Cheap loans by banks for this industry need to be streamlined and strict reference checks need to be made to make sure no undue advantage is taken by anyone.”

OPPORTUNITIES EXIST
While he acknowledged the difficulties currently facing the industry,
Amit Doshi, director, C. Dinesh & Co. Pvt. Ltd., emphasized that “there is also enough opportunity in the market for people who deal in goods at the right price and quality. We are doing good business and we have been witnessing a year-on-year growth in our company, which is proof enough that there is demand in the market. But, I repeat, it is only if you have the right kind of goods at the right price and quality. The IIJS show proved to be good for a majority of us. We are seeing a lot of inquiries from the show being converted into business and we are looking forward to the
Hong Kong show.”

Sunil Kumar Gupta, senior manager of marketing and strategy at
J.B. and Brothers Pvt. Ltd., rejects the idea that the industry is facing any crisis at present. “The industry is stable. It gets a bit disheartening to read newspapers talking about the industry being in crisis all the time. In fact, personally speaking, we have been witnessing a remarkable improvement in demand in the market and with the U.S. elections just round the corner, things are looking better. We deal in solitaires and .30 carats to 10 carats in round and fancy shapes in all colors and clarities and we haven’t seen a slowdown in any of the categories.”

EXPORT VOLUME
The most recent statistics published by GJEPC indicate the volume of polished diamonds exported by the country has seen a dramatic drop
of about 95 percent to land at 95 million carats in the April to August 2012 period. This compares to 200 million carats exported during the same period in 2011. Commenting, Rajiv Jain, chairman, GJEPC, admitted that the initial months of the current fiscal year have not been good, which he attributed to the government’s imposition of a 2 percent duty on imported cut and polished diamonds — it was at 0 percent previously — which resulted in a 30 percent drop in trading exports.


Article from the Rapaport Magazine - October 2012. To subscribe click here.

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