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Mumbai Bourse Eager to Hold Rough Diamond Viewings

Q & A With Anoop Mehta – President of Bharat Diamond Bourse and Managing Director of Mohit Diamonds

Aug 17, 2014 3:56 AM   By Rapaport News
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RAPAPORT... The Bharat Diamond Bourse, located in Mumbai, India, is the world’s largest diamond bourse. The exchange was founded in 2010 and is led by, Anoop Mehta, who serves as its president. Mehta has participated in the diamond industry for 30 years and is the managing director diamond and diamond jewelry manufacturer Mohit Diamonds. In an interview with Rapaport News, Mehta describes the plans for the bourse's future development and diamond industry trends taking placing in India.

Rapaport News: How has the Bharat Diamond Bourse (BDB) evolved since its launch?

AM: The first few tenants moved into the bourse in 2010 and today we have reached full occupancy.

We have also accommodated the small-scale manufacturers and dealers who used to be in Opera House by placing 350 cabins on the bourse’s ground floor, with another 50 cabins recently going into development. These have all been fully subscribed.

We have a trading floor which is not very active because foreign buyers usually conduct business in their trading partners’ offices. The Mumbai Diamond Merchants Association is very active though; it has 20,000 square feet of space for the local trade, and it’s always full.

Rapaport News: Does the BDB have any further business development plans?

AM: We are always looking to try new things. We are planning an International Diamond Week, which will take place in the bourse sometime in early 2015. It will have about 300 booths and the offices in the complex will act as cabins for the week of the show to satisfy any excess demands for space.

We are also planning to set up rough diamond viewings ahead of tenders. The government has recognized the importance of allowing mining companies to bring in rough diamonds tax-free for viewing purposes and in principle has agreed to permit it. After these viewings, an online auction can take place for the rough. We will not hold any auctions but we will provide the viewing space in a government-designated area to enable companies to show their rough.

The BDB, together with the Gem and Jewellery Export Promotion Council (GJEPC), is preparing 12 to 15 show rooms that the mining companies could rent for viewings. The rooms will be ready around March of next year, so it will soon be a reality.

We have already spoken to three or four major diamond miners and a few of the major tender and auction experts and they are eager to conduct viewings between six and 10 times a year. Mumbai is very appealing for them because you can’t get better exposure to buyers. Everyone from the smallest traders to the largest manufacturers is based here.

Today, Indian manufacturers need to travel to Dubai, Antwerp, southern Africa or Russia to view and buy rough. If the rough was brought here it would increase manufactures access to rough many times over. At present about 150 companies have access to rough viewings, whereas if we bring them to Mumbai, more than 1,500 manufactures will gain access.

Rapaport News: How would development of a bourse in Surat affect the BDB and trading activity in Mumbai?

Surat needs the infrastructure because there are four or five markets there and four or five areas where cutting and polishing are done. These venues need to be consolidated and centralized. There is a location issue because some promoters want to develop a new piece of land, while others want it developed in an existing place that the industry has already held for 10 years.

I think that we have scarce resources so we need to use them judiciously; therefore we should modernize existing infrastructure rather than making a big investment in a brand new property. However, the question of whether it is going to compete with Mumbai is no longer on the table.

Rapaport News: Are you seeing more multinational retailers looking to open offices in India?

If you look at polished, 12 out of 13 diamonds today are manufactured in India. This means that whether you want to manufacture or trade, Mumbai is the entry point and can be used as a base to set up a strong distribution network or sourcing office in India.

Being at the heart of things enables you to better understand who your suppliers are and comprehend the movements in the polished market. You also may start to look at India as a place to open retail stores and utilize your retail expertise when the time is ripe.

Don’t forget that India is one of the largest jewelry markets in the world and is forecast to grow by at least 15 percent to 20 percent annually. About 60 percent of the population is 26 years old or younger and very in touch with international trends. This means that in the next five to 10 years, you should have a sizable consumer base that wants more international designs and a better retail experience.

Some of the big retail groups have already established a presence here by setting up an office, and it’s just a matter of time before others follow suit because India’s economy is opening up.

Rapaport News: How has the mood been in India since the election and the India International Jewelry Show (IIJS)?

AM: People were very optimistic when they came back from the JCK Las Vegas show. The U.S. is showing some growth, but it will not help lift polished prices enough to restore liquidity to the whole industry. Simultaneously, dealers in India and China are much more optimistic this year than in 2013, although I don’t think it is enough to solve the industry’s problems.

Rough prices are rising, so unless there is a similar rise in polished prices there will be continuous pressure on manufacturers’ margins.

Rapaport News: How do you explain the strength of the rough market amid tight margins for manufacturers?

AM: Prices rose very marginally at the July sight. However, the secondary market was extremely strong, partly because manufacturers need to feed their factories.

This was also one of the last sights when they could buy rough diamonds to prepare for the manufacturing cycle ahead of Diwali. Diwali is two to three weeks earlier this year and factories will definitely shut down for the holiday.

Rapaport News: How is domestic polished demand shaping up ahead of Diwali?

AM: Domestic demand has not picked up in the past year and you could see this at IIJS, although the show was earlier this year so the timing was not great. Normally, the buying season starts in earnest in September.

Still, everybody is optimistic that the economy will revive. If it doesn't happen by September-October, then there could be a late revival sometime between January and March of next year.

Rapaport News: People seem to be putting a lot of hope in the new government. Were you encouraged by the recent budget or disappointed that the duty for polished diamonds was raised?

AM: The new government only had two months to examine the economic considerations behind the budget, so it was more like an interim budget. They mainly tweaked previous policy decisions and even these changes weren’t carried out completely. The increase in the duty on polished diamond from 2 to 2.5 percent was just a tweak. We will have to wait until the full budget is submitted in February to see if the government will live up to expectations.

Rapaport News: Has the attitude of the banks changed to be more conservative toward the industry?

AM: The banks are definitely more cautious about issuing loans. There have been some bad debts that have surfaced in the industry and the banks must shore up their balance sheets to comply with the Basel III requirements within the next two years.

As a result, the amount of bank credit to the industry may have declined, but the banks have not shied away from increasing credit where it is deserved. They are just being very selective.

The real issue is that when the banks tighten credit it is always the small- and medium-sized companies that are the most affected because they are the ones who actually need the credit to expand their businesses. We have to find a way to keep them from being left out in the cold.

Rapaport News: Are small-and medium size manufacturers being overshadowed by industry consolidation?

Yes, but that is due to tight manufacturing margins. The small- and medium-sized manufacturers are closing shop because the margins are not there. At the same time, there is no new blood coming into the industry.

The silver lining is that it looks like the world economy is turning around and hopefully by 2015 manufacturing will be profitable again. This would encourage new entrepreneurs to come and set up factories.

Rapaport News: There is a suggestion that there is an oversupply of polished in the market at the moment. Do you share that assessment?

AM: There are a lot of goods in the 0.20-carat to 1-carat sizes, despite the five months of inventory held up at the Gemological Institute of America (GIA). Think about what it would mean if the turnover time at the GIA dropped to two weeks overnight. All of those goods would flood the market.

I expect that the GIA will reduce the backlog gradually and not all in one shot. If the goods are released gradually, they would reach the market sometime in 2015, and if it is in sync with an improving market the effect should be minimal.

However, if the turnover improves rapidly, then the effect on prices could be significant, like what happened when the GIA started prioritizing 1-carat and higher stones. After they improved turnaround times on the 1-carats stones you saw the prices in that category weaken over the past 3 to 4 weeks.

Rapaport News: What advice would you give to someone starting out in the industry?

AM: Make sure to use your own capital and conduct your business ethically. You need to ensure that you are buying and selling the right goods with the right people if you want to stay in business long-term.

While ethics can be somewhat subjective, today compliance plays a major part in the business.

Having said that, as the industry has grown, many old values have started to fall by the wayside and some of those things need to be brought back. For example, when you said mazal it signified a commitment, and you couldn’t go back on it or it would affect your reputation. These kinds of values needs to be brought back to the trade.
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Tags: Anoop Mehta, BDB, Bharat. Mumbai, Rapaport News, rough diamond trading
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