Jewellery firms surge after RBI eases gold norms
May 22 2014 , Mumbai
The moves by the RBI, announced late on Wednesday, should increase supplies of gold and brighten the earnings outlook for jewellery makers after the government took tough measures to curb imports last year, analysts said.
Although the two steps alone are not expected to impact India's current account deficit, they could reinforce expectations that RBI and finance ministry officials will soon move towards removing some of those curbs.
Restrictions on the import of gold were widely credited for helping the current account deficit shrink to 0.9 percent of gross domestic product in the December 2013 quarter compared with a record high 6.5 percent a year earlier, sparking a recovery in the rupee from record lows hit in August.
"Possibly, there will be a $7 billion to $8 billion pickup in gold imports in a year due to this relaxation which is unlikely to put much pressure on the current account deficit and therefore the rupee," said Pradeep Khanna, head of foreign exchange trading at HSBC in India.
Titan shares closed 6.8 percent higher, while Gitanjali Gems Ltd gained 11.9 percent. Other gainers included Tribhovandas Bhimji Zaveri Ltd and Shree Ganesh Jewellery House.
After Wednesday's measures, more than 20 entities, including banks and agencies will be allowed to import gold. Meanwhile, the resumption of gold loans to jewellers, stopped last year, will make it easer to fund purchases.
Economists and traders now expect other restrictions on gold imports such as high import duties to be also taken off. The decision rests with the new government.
India's incoming prime minister, Narendra Modi, who led Bharatiya Janata Party to a decisive victory in a just-concluded election, has indicated his willingness to remove gold curbs.
"The current tweak in regulation possibly hints at a direction that gold related restrictions have peaked and the curbs on gold imports will be eventually be relaxed, albeit gradually," said Siddhartha Sanyal, an economist at Barclays.