Take Heart! Monetary Difficulties are Temporary

India will be the market leader in diamond business in the near future...

Published on:

24 Feb 2006, 6:30 pm

With reports trickling in about the unavailability of money in the industry, inconsistent supply of goods, closure of small units and shift of diamond traders to the real estate and stock market. Diamond World delves into the facts and formulations of the issue by talking to the DTC Sightholders about the future of the diamond industry, supply of rough diamonds and affect of investments moving to the stock market and real estate.

Evergreen Industry:

Vasant H. Gajera, Laxmi Diamond "Due to increase in profits in real estate and stock market there is a shift in funds from diamond sector to these channels. Since the last five years the smaller units are getting smaller whereas bigger are getting bigger it is a global cycle. When you look at the rise in index to 3000 points any person will get attracted to the stock market. In case of local dealers they are getting 5% profit after putting in so many efforts in diamond industry whereas in stock exchange they get 10% profit in a short span. Being in industry is different as it is evergreen whereas stock market is cyclic, it goes up and down. There is no such crisis in the diamond industry; maybe first quarter goes a bit slow, but next quarter is going to pick up."

Gold & Diamonds to Prevail:

"If we recall the situation five years back the first consumer was US followed by Japan and then came Middle- East and Europe. I feel India will be the market leader in diamond business in the near future. In India the population density, education, employment opportunities, increasing income levels even after saving has led to growth in the industry. Gold and diamond will be purchased as the resale value is more than other household luxuries."

Manish Pethani of M. Suresh said "There is a shift towards real estate due to more profits than the diamond industry. Local dealer who is specialized in something has a potential; you can grow with your specialized products. There is scope for the dealers also, if there is a good marketing man it has a positive effect for his product in this industry. Closure of small manufacturing units has no drastic effect on the business." "Increase in the supply of rough diamonds is round the corner as new mines are coming up. First half of 2006 is challenging for the industry. Any industry with a good set up, infrastructure, good business plan will be able to survive. Indian jewellery market is better than Gulf or China as it has a large potential, big economy people are spending their money.

Investment Cycle:

Managing Director, Dhirendra Hirawat of Tache says, "It is a temporary phase, every cash flow is going in one direction. Last year nobody was thinking of anything else but diamonds, this year everyone is running for stock exchange and real estate. If you go to other towns like Jaipur or Chandigarh there are people who became rich by investing in stocks .It is just that they are a bit speculative. It is a cycle, in the end when things become normal whatever money they make out of the stock market or real estate will be invested back in our business."

"As far as money crunch is concerned it is due to uneven inventory levels, overtrading by people and blocking their money .The closure of small units has not been a major deterrent as they have small capital and so they want the best return for their capital by investing it in the stock exchange.

"There is no such lack /inconsistency of rough diamonds coming in, the problem with our industry is that when they go bullish they go bullish; economy overnight is not changing it is a cycle. People who remain in their senses, planning it well will always be consistent with their business. These factors are not going to affect the diamond industry as, weddings are not going to stop, our traditions are not going to change, and we are still going to have Diwali, Navratras. Abroad they don't have such rich cultural heritage and fixed traditions, there the market is dependent on the media hype. So Asia will be more consistent as compared to Europe, India is going to emerge as a better market."

More Profit Elsewhere:

Rajiv Shah, Director, Diamant Overseas, "Over all the American market has affected Indian diamond trade very adversely, Hong Kong and India both are very strongly dependent on America as far as manufacturing is concerned. Secondly there is a very big boom in real estate and stock exchange so interest of people in the diamond trade has shifted to these areas. With diamond business being slow there are double effects, profit margins are far beyond imagination in real estate.

There is slight tightness in the market as all payments are shifting towards Ahmedabad and Baroda which have strong property value; those who have invested in it are reaping profits. As India is a growing economy the demand for real estate is much higher than the diamonds. In a short time people have made very big profits which they cannot make in the diamond industry."

"People have goods in their possession but are not ready to sell at the current prices. They are waiting and watching for the prices to stabilize, market has grown but there is tightness because of the cash flow. On cash basis everyone is ready because of whole cycle of cash payments, has created shortage of rough supplies in the market. "

"The diamond industry is going through a rough phase. 2005 may prove to be a slow year for everyone. 2007 will bring something better. Present demand is mostly for rounds; princess has slowed down considerably. However bigger sizes and fancy shapes keep moving in the Indian market".

Desired Tax Accomodation Round the Corner?

India's commerce and industry ministry is reportedly endorsed the exports -driven US$ 17 billion diamond industry's request for a shift from tax on income to a turnover-based tax. It has reportedly proposed the same to the finance ministry. Turnover based tax on gems, which addresses valuation issues better than income tax, is prevalent in many countries, including Belgium, the largest exporter of diamonds (US$23billion). Turnover tax would increase compliance therefore government will mop up more revenue. The global gems industry is witnessing a shift from Belgium and Israel.

Follow DiamondWorld on Instagram: @diamondworldnet
Follow DiamondWorld on Twitter: @diamondworldnet
Follow DiamondWorld on Facebook: @diamondworldnet