Gold Price Hike To Dent Jewellery Volumes but Not Revenues: CRISIL

Moneylife Digital Team 23 April 2025

Economy & Nation

The sharp and sustained rise in gold prices is set to dent the sales volumes of organised jewellery retailers by 9%–11% in the financial year (FY)25–26. Despite this anticipated drop, revenues are still expected to rise by 13%–15%, driven by higher realisations and inventory gains, says a report from CRISIL Ratings. Gold is considered a safe-haven investment in times of crisis and uncertainty, and has performed consistently most of the time in the last 21 years. On Tuesday, gold prices surged to a historic high, breaching the Rs100,000 per 10gm mark for the first time. On the Multi Commodity Exchange (MCX), the August futures contract soared by Rs2,048, or 2.1%, reaching an unprecedented Rs100,000 per 10gm during mid-session trade.

The report highlights how four consecutive years of strong growth in the organised gold jewellery sector, with revenues expanding two and a half times since FY20-21, are now being challenged by gold prices reaching historic highs. The price surge, which has seen gold rise by about 25% in FY24-25 alone, has squeezed consumer purchasing power, resulting in lower quantities being bought even though demand has not fully collapsed, the rating agency says.

CRISIL Ratings’ analysis of 60 organised gold jewellery retailers — collectively accounting for about a third of the sector’s revenues — reveals that while consumers are maintaining their ticket sizes, they are purchasing lower caratage and weight to compensate for the price hikes.

Himank Sharma, director at CRISIL Ratings, noted that the most recent price spike coincided with the festive and wedding season. “Though this timing limited the immediate impact on demand, continued high prices may suppress volumes further,” he said, adding that the trend of reduced caratage and grammage purchases, already visible in recent years, is likely to persist.

The increase in prices, however, is not entirely bad news for retailers. Jewellery is being sold at significantly higher prices than purchase costs, resulting in inventory gains and improved profitability. CRISIL expects operating margins to rise by 30–40bps (basis points), reversing the downward trend of the past two years.

The rating agency projects revenues for the sector to reach Rs4.5 lakh crore–Rs5 lakh crore in FY25-26, buoyed by strong consumer preference for organised retail formats following the implementation of goods and services tax (GST) and the mandatory Bureau of Indian Standards (BIS) hallmarking.

According to Gaurav Arora, associate director at CRISIL Ratings, although inventory costs and working capital borrowings will rise due to elevated prices and expansion of retail networks, “the overall capital structure will remain comfortable.” He added that debt protection metrics would remain robust, with interest coverage ratios expected to exceed six times.

The report does, however, caution against potential risks. Any sharp volatility in gold prices, changes in government regulations or import duties and shifts in consumer sentiment could significantly alter market dynamics.

CRISIL’s outlook reflects a complex picture for the industry — buoyant revenues in the face of shrinking volumes, as consumers adjust to the reality of costlier gold.

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