Indian Jewelers Offer BMWs, Discounts to Lure Gold Buyers

Joyalukkas Group, a gold and diamond retailer in India, is offering 12 free BMW cars and two kilograms (4.4 pounds) of bullion in a lucky draw as it fights a lean season in the world’s second-biggest buyer of the yellow metal.

Others including Gitanjali Gems Ltd., Rajesh Exports Ltd. and Kalyan Jewellers Ltd. are promising everything from discounts to an opportunity to dine with Bollywood celebrities.

The monsoon season starting this month, usually considered a lean period for gold demand due to the lack of festivals and weddings, is threatening to deepen a sales slump caused by import curbs imposed last year. India raised duties on inbound shipments of the metal three times in 2013 to contain a record current-account deficit that pushed the nation’s currency to an all-time low.

“This is the first time we have come out with a single promotion for entire India and the Gulf countries to boost demand during the rainy season,” Joy Alukkas, managing director of Joyalukkas, said by phone from Kochi on June 18. “There are holidays in the Gulf countries during these months and non-resident Indians come back to their hometowns in south India. We are hoping to tap that market.”

Joyalukkas’s offers, valid until Aug. 2, are likely to boost sales this monsoon season by 10 percent to 15 percent, Alukkas said. The group has 47 stores in India, 32 in the Middle East and one each in the U.K., Singapore and Malaysia.

Rekindling Demand

Sales of Gitanjali Gems dropped 24 percent to 124.4 billion rupees ($2.1 billion) in the financial year ended March 31, the first annual decline in revenue since listing on the stock exchanges in 2006, according to data compiled by Bloomberg.

Rajesh Exports’ sales slid 24 percent to 235.4 billion rupees, the first annual slump since 2003, while Titan Co. Ltd.’s jewelry revenue grew 6.5 percent to 86.32 billion rupees, the slowest pace since at least 2008.

While freebies may stem the decline in sales, Prime Minister Narendra Modi’s efforts to revive economic growth may have a greater impact on rekindling jewelry demand, according to Abhijeet Kundu, an analyst at Antique Stock Broking Ltd.

Modi won the election after promising to revive economic growth from near a decade-low. His poll victory, the biggest for any single party in three decades, drove the benchmark S&P BSE Sensex to an all-time high this month, as foreign investors bought about $10 billion of shares in 2014 and domestic mutual funds attracted the most inflows in five years in May.

‘Rain & Shine’

The new government has pledged to build 100 new cities, introduce high-speed trains and take steps to cool inflation while simplifying tax and investment rules

“To see an acceleration in earnings growth, the discounts have to come down and volumes have to pick up,” Mumbai-based Kundu at Antique said by phone on June 19. “There is some amount of revival in gold jewelry demand. By December, if the consumer sentiment improves further, then you could see better volume growth.”

Gitanjali Gems, India’s biggest gold and diamond jeweler by revenue, will announce a “rain and shine” plan next month, offering discounts on ornaments and jewelry making charges, Chairman Mehul Choksi said.

“Sales are flattish at the moment because stocks are less and people are waiting for new policies to be unveiled” by the new government, he said by phone from Mumbai on June 17. “We expect demand to pick up because of these offers and the restrictions being eased as well.”

Deficit Shrunk

India raised gold import taxes to 10 percent and required shippers to supply 20 percent to jewelers for export and sell 80 percent on the local market. The steps resulted in a drop in demand for the metal, helping China surpass the South Asian country as the world’s No. 1 buyer.

The industry expects the Modi administration, which took office last month, to reduce the tax in the federal budget to be presented July 10 because of improving economic conditions, according to the All India Gems & Jewellery Trade Federation.

The curbs on gold helped narrow the current-account deficit to $32.4 billion in the financial year ended March 31, from a record $87.8 billion a year earlier, the Reserve Bank of India said May 26.

A shrinking deficit aided the rupee in its recovery. It has rebounded about 13 percent since touching an all-time low of 68.845 against the dollar in August.

The rally in the rupee and reduction in the deficit may allow Modi to ease the restrictions on imports, Rajesh Exports Chairman Rajesh Mehta said by phone from Bengaluru, formerly known as Bangalore, on June 17. A pick-up in demand may result in a growth of as much as 25 percent in net income this financial year, he said.

Bollywood Stars

“We are looking at a good year,” said Mehta, whose 82 stores in Karnataka state have waived ornament making charges to increase sales.

Billionaire T.S. Kalyanaraman’s Kalyan Jewellers offers its regular customers a chance to dine with a celebrity and watch its brand ambassador Aishwarya Rai Bachchan on the sets of a film. Kalyan has been rewarding loyal customers with such offers depending on the number of times they visited the store in a year, said Ramesh Kalyanaraman, executive director of the Thrissur-Kerala based jeweler.

“This time we expect demand to be better as the mood is positive because of the change in government,” he said. “People assume the government will be friendly for gold.”

Monsoon Risk

Gitanjali’s shares have gained 29 percent this year in Mumbai, compared with the 20 percent rally in the benchmark S&P BSE Sensex index. Rajesh Exports has more than doubled to a record closing high of 190.70 rupees, while Titan has advanced 47 percent to 337.75 rupees.

A weak monsoon poses a risk as almost 65 percent of Indian purchases are from the rural areas, according to UBS AG. The monsoon will be 7 percent below normal this year as an El Nino emerges, the nation’s weather department said June 9.

Monsoon rainfall is the the main source of irrigation for India’s 263 million farmers as about 55 percent of the crop land is rain dependent. An estimated 833 million people out of the 1.2 billion population depend on agriculture for their livelihood and the sector accounts for 14 percent of the nation’s gross domestic product.

India’s gold imports may climb 25 percent to 800 tons in the year that began April 1 as the central bank may relax some restrictions, Citigroup analysts Rohini Malkani and Anurag Jha said in a report on May 22. Shipments were 845 tons in 2012-2013, the finance ministry says.

“With the kind of promotions and expectation of a change in import tax, we should see some normalcy in demand,” C.P. Krishnan, a director at Geojit Comtrade Ltd., said by phone from the southern Indian city of Kochi yesterday.

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