Rapaport Magazine

Diwali shines bright

Indian jewelers are optimistic ahead of the important festival, bucking the more cautious global trends.

By Avi Krawitz

Colin Shah struck a determined but relieved figure at the India International Jewellery Show (IIJS) in early August. The event was a last hurrah for the measured, soft-spoken jewelry wholesaler whose two-year term as chairman of the Gem & Jewellery Export Promotion Council (GJEPC) was ending a few weeks later.

As the GJEPC’s largest event, as well as the largest jewelry trade show on India’s busy calendar, IIJS is an important bellwether for local demand. It is perfectly timed for jewelers to stock up for the Diwali festival — which falls on October 24 this year — and the wedding season, which extends from the auspicious days of mid-August through the start of the monsoon season around mid-March.

“India is strong despite the global situation,” Shah stated in a press briefing at the show. “And it’s not cautious optimism, it’s very optimistic for Diwali.”

One of the main reasons he cited for this positive outlook was consumers’ pent-up excitement about going out to shop after spending the pandemic indoors and online. Many at the show echoed that sentiment, but also pointed to the country’s robust economy as a factor.

While the cost of living has gone up — year-on-year inflation rose to 7% in August from 6.7% in July, and the Reserve Bank of India hiked its interest rate back up to pre-pandemic levels at 5.4% — sentiment remains upbeat among jewelers. Economic growth is set to stay above 7% in 2022, according to the World Bank — not as high as 2021’s 8.9% growth, but still a respectable number. In late September, India’s Department of Economic Affairs reported a continuing rise in consumer confidence.

That confidence is trickling down to retail. Titan Company, India’s largest branded jeweler, saw its jewelry sales nearly triple to INR 83.51 billion ($1.05 billion) in its first fiscal quarter, which ended June 30, compared with INR 30.5 billion ($383.2 million) the year before.

Shift in taste

Indeed, retail jewelers placed more orders at the show, which is an indicator of expectations for the season, Shah noted.

Shifts in cultural tastes meant there was significant interest in gold jewelry and diamond pieces. The move toward less heavy styles in India accelerated during Covid-19, and the vendors at the show displayed more lightweight pieces and delicate designs featuring diamonds. Among other things, fewer women are opting for a bold gold mangalsutra — the traditional necklace the bride receives at a Hindu wedding and wears throughout her marriage. She might don a bulky version for the ceremony, but would then have a lighter diamond pendant for everyday wear, explained one retail executive.

Social media is also influencing cultural tastes, exposing designers and younger shoppers to Western trends, observed Jenak Jethani of jewelry manufacturer Jet Gems. Designers are now experimenting with different gemstones and infusing the traditional into more lightweight, wearable pieces, he explained.

Exports favor large stones

Growth in India is providing some respite for diamond suppliers who rely on exports and have seen a drop in global demand lately. Although manufacturers’ orders are higher than before Covid-19, they’re down an estimated 5% to 10% from last year.

India’s polished exports fell 14% in July and 7% in August, according to the latest GJEPC data. For the first half, they rose 4% to $12.49 billion, while by volume, they dropped 13% to 13.2 million carats. That indicates a shift to larger sizes and higher-value stones; the average price of exports was up 20% at $946 per carat — the highest Rapaport has on record for the country.

This trend also appears to reflect weakness in China — a strong market for smaller certified goods such as 0.30-carat stones, which saw a steep price decline of 5.2% between January 1 and September 1, according to the RapNet Diamond Index (RAPI™). Indeed, most manufacturers that spoke with Rapaport Magazine acknowledged that China was quiet and that US orders were buoying their exports.

What about rough?

India’s rough data follows a similar pattern. Rough imports grew 12% to $9.82 billion in the first half, though they fell 25% to 66.8 million carats by volume. The average price jumped 94% to $296 per carat — also a record by Rapaport’s count.

The figures show the impact of Alrosa goods being off the market. The Russian miner is a leader in smaller diamonds and has been under US sanctions since March, so it makes sense that cutters have imported fewer diamonds but of higher average value. That said, Indian manufacturers confirmed rumors that Russian rough had come into Surat, albeit at lower volumes than before the war in Ukraine. Nor are these goods selling at a discount, said one manufacturing executive who requested anonymity, though he acknowledged that no one was prepared to admit to buying them.

Since India hasn’t placed sanctions on Russia, it can legally import Alrosa rough — and it can technically sell the finished polished to American customers under the US sanctions’ “substantial transformation” loophole, which allows the sale of Russian product that has undergone a material change in a third country. There’s also demand from the domestic Indian market, as well as from China and other countries that have not imposed sanctions, the executive said.

Yet while rough supply has declined, manufacturers are holding relatively high polished inventory. There are no wide-scale polished shortages in the market, since demand has declined and dealers and cutters want to reduce their inventory, noted Mayur Narola, sales and finance head at manufacturer Narola Diamonds.

Domestic confidence

The sourcing hurdles and high inventory have led manufacturers to slow their output, but Surat factories have lab-grown to keep them busy. As Vallabh Patel, head of manufacturer Kiran Gems, put it: “It is a blessing of G-d that lab-grown came to India, because it gives us work.”

In the first half, India’s synthetic polished exports surged 80% year on year to $860 million. The country accounts for an estimated 15% of global lab-grown supply, and the GJEPC is working with the government to expand the segment.

Shah and the GJEPC board under new chairman Vipul Shah — CEO of manufacturer Asian Star — have a number of programs in place to grow the gem and jewelry export sector. For September and October, however, it’s the local market that’s driving the positive sentiment in the country’s diamond and jewelry trade.

“India’s domestic market hasn’t felt the same uncertainty this year as other markets,” commented Colin Shah. “We saw at the show [that] there is confidence for the Diwali holiday season.”

Surat on the rise
In the bustle of Patidar Bhavan Road, the main thoroughfare of Mahidharpura market, diamond dealers sit cross-legged behind rows of meticulously parked motorbikes, waiting for buyers to arrive. Their “offices” typically consist of a cushion, perhaps a small legless desk with a fluorescent light, a loupe, tweezers, sieves, a desk pad, and a cellphone in a pocket. Out on the street, buyers navigate the chaos of rickshaw taxis, the odd luxury sedan, pedestrians, food vendors, and priests offering Hindu prayers. The 11 a.m. dealer crowd trades in smaller diamonds, while the sellers of larger stones — about 0.50 carats and up — arrive at around 1 p.m. to catch the peak of buyer traffic. However, business has been slow the last few months, says one trader in his mid-40s via a translator.

The dealers of Mahidharpura rely more on the local trade than on international markets. In that sense, it is considered the heart of the Surat diamond industry, even though the bulk of business happens in the city’s large factories and offices. Most of the diamonds manufactured there go to Mumbai for marketing and distribution — until now, that is.

Surat’s diamond leadership is aggressively working to establish a trading sector to complement its manufacturing prowess. The enormous Surat Diamond Bourse (SDB), scheduled to open in the coming months, is a testament to that ambition. The massive office park spans 6.6 million square feet and comprises over 4,000 offices. The first tenant, Kiran Gems, is planning to make the move around December or January, reports company chairman Vallabh Patel, who is also chairman of the SDB. Kiran will take up 125,000 square feet of space there, covering four floors; it is moving most of its sorting, sales and distribution operations from Mumbai to the new location. The facility is about 95% sold, though Patel recognizes that it will take some time before the exchange fills up — maybe six months to a year for the moving to gain momentum.

The development will change the nature of India’s diamond trade, arguably elevating Surat — already the nation’s manufacturing hub, processing over 90% of global supply — to the country’s main trading center as well. That will require a significant upgrade to the city’s infrastructure; currently, the most accessible route to Surat from Mumbai is a three-hour train ride. Within a few months, Surat’s airport will increase its flights to Dubai and Hong Kong threefold, and a number of five-star hotels are under construction, Patel reports. Once at viable capacity, the SDB will alter the dynamic of the city. The Mahidharpura dealers have a tradition of withstanding change in their fast-developing town, but most will inevitably move to the new exchange themselves.

Image: India International Jewellery Show (IIJS)

Article from the Rapaport Magazine - October 2022. To subscribe click here.

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Tags: Avi Krawitz