which had announced expansion plans

On the BSE, shares of Gitanjali Gems fell 19.99 per cent to close at Rs 405.35, while the PC Jeweller stock touched its 52-week low of Rs 84.55 in intraday trading but recovered later to close at Rs 89.35, down 8.55 per cent from its previous close.

Mumbai-based Tribhovandas Bhimji Zaveri (TBZ) saw a fall of 6.88 per cent in its shares and closed at Rs 181.95 on the BSE. Titan stock declined 0.47 per cent to Rs 221.80 on Monday. However, it had fallen sharply since June 3 when it closed at Rs 289.6. 
Analysts attributed the fall to concerns on topline growth in view of the forecast that volume growth in the second quarter would be down by almost half.

Another analyst, AVP at Religare Securities, Vikas Inder Jain said that the working capital requirements will be impacted for some of these companies.

“It will increase, pushing the debt equity ratio higher from the current levels by 0.5-0.8 per cent. This in turn will dent the return on equity and capital employed, and there valuations.”

Some of these companies, which had announced expansion plans before the plunge in gold prices and subsequent RBI curbs caught them offguard, could be in a tight spot, said Sekhar. “They have made investments into it and would find it extremely difficult to reverse, in view of the recent developments.”

PC Jeweller said that expansion plans are indeed on course. The president-finance of the New Delhi-based company, Sanjeev Bhatia said, “There is no change in our plans and we are going to open 14 stores this fiscal.” It opened six stores in the first quarter. Its investment in the seven stores slated to open in the second quarter is about Rs 225 crore.

Companies, like PC Jeweller that lease gold won't be affected by the RBI notification on gold imports through consignment basis, Bhatia said.

In the wake of the unprecedented fall in prices in April this year, the director-corporate ratings at India Ratings and Research, Deep N Mukherjee had said: “The price of leased gold is open-ended and the cost of gold is fixed at the time of sale of gold or jewellery to the customer. This enables retail jewellers to lower inventory risk.”

The call by the All India Gems and Jewellery Trade Federation (AIGJTF), which represents about 90 percent of jewellers, comes just days after financial services company Reliance Capital halted sales of its gold-backed funds.

"As a responsible trade body, we have requested our retailers not to sell gold coins or bars. We need to help the government to solve the CAD (current account deficit) problem," said Haresh Soni, chairman of the AIGJTF, which has more than 40,000 members.

India is the world's biggest gold buyer, and soaring imports have sent its current account to a record deficit. New Delhi has raised the import duty on gold twice since January 1, doubling it to 8 percent, and the central bank has imposed measures forcing customers to pay up front for gold.

"We have appealed to members not to sell coins and bars till our CAD situation resolves," Soni said.

"We expect 1,500-2,000 retailers to stop sale of gold coins and bars immediately," he added.

About 30 to 35 percent of last year's imports of 860 tonnes went into investment demand, Soni said. Most of the gold imported into India goes into making gold jewellery, traditionally part of a bride's trousseau and dowry.

"We are safe guarding the jewellery industry ... (which) generates employment and creates revenues for the government," he said.

On Monday, shares in listed jewellers such as Gitanjali Gems Ltd (GTGM.NS) and PC Jeweller Ltd (PCJE.NS) fell sharply on concerns the government measures could hit their businesses.

Soni said the federation had asked the government to reduce the import duty from 8 percent to 4 percent.

Falling world prices from mid-April triggered a surge in demand globally. India's imports hit a record of 162 tonnes in May, more than double the average monthly import level in 2011, a record year.

The government's and central bank's latest actions to curb buying came earlier this month, and Soni said imports in June had declined drastically. He declined to give specific figures.

Finance Minister P. Chidambaram said last week imports had fallen in value to about $36 million a day from $135 million before the curbs.

But the World Gold Council (WGC) estimated imports could still be 300-400 tonnes in the second quarter - almost half the total for 2012 - and the government itself said imports had exceeded 300 tonnes in April to mid-May.

Domestic prices are already back near levels before the rise in the duty, which indicates demand could revive, particularly as a bountiful monsoon starts to raise hopes of increased incomes for farmers and India's large rural community.

On April 16, domestic gold futures hit a contract low of 25,270 rupees per 10 grams, and they are now trading around 26,734 rupees.

"Demand in India is price inelastic ... the fundamental reasons for gold demand in India cannot be addressed through supply restrictions," said Somasundaram PR, managing director for India at the WGC, in an email.

The WGC last month said 82 percent of Indian consumers in a survey said they thought the price of gold would increase or be stable in the next five years. Many Indians see gold as a sound investment in a country that lacks any kind of comprehensive banking system and with real interest rates stubbornly low.
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