Dileep Narayanan, Head - (Treasury & Banking), Malabar Group of Companies, delivering the keynote address at the Bullion Conclave 2019 organised by BusinessLine in association with MCX in Kochi

Dileep Narayanan, Head - (Treasury & Banking), Malabar Group of Companies, delivering the keynote address at the Bullion Conclave 2019 organised by BusinessLine in association with MCX in Kochi

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Industry already reeling under price rise and reduced demand, say players

Gold jewellers are apprehensive over a possible move to raise the GST rates with the Centre attempting to rationalise the rate structure. If the GST rate is hiked, it will have an adverse impact on the sales and profit margins, said Dileep Narayanan, Head – Treasury & Banking, Malabar Group of Companies.

Bullion purchase is a capital-intensive industry and the current 12.5 per cent import duty and 3 per cent GST have already made a significant dent on the industry’s profitability, he said in the keynote address at the Bullion Conclave 2019, organised by BusinessLine in association with Multi Commodity Exchange of India, in Kochi.

Besides, the upswing in unauthorised imports is a menace that the industry is facing while seeking to maintain its transparency and credibility. GST should be levied at the manufacturing level and there should be a tracking system from production to consumption, he said.

The bullion industry is passing through a challenging phase because of the price rise, reduced demand and muted consumer sentiment. Quoting the World Gold Council report, Narayanan said India’s cumulative gold demand decreased to 496.11 tonnes from 523.9 tonnes in the first nine months of 2019. Gold imports decreased to 502.9 tonnes in the first nine months from 587.3 tonnes a year ago.

“It is quite obvious that the hard times in the bullion industry will prolong, unless an effective and far-reaching revival strategy is put in place to boost the demand and consumer confidence,” he said.

Different gold rates followed by jewellery makers have created confusion among consumers. Bullion associations should create a uniform roadmap in order to offer a level playing field in the sector, he added.
Refiners’ participation

PS Reddy, Managing Director & CEO, MCX, said the exchange would soon bring domestic gold refiners on its platform, subject to all regulatory approvals. Hitherto, LBMA (London Bullion Merchants Association) approved brands are permitted to participate in the exchange platform. The refiners’ participation will enhance the availability of quality gold in the market.

“The idea is to integrate the gold market by bringing all manufacturers in the entire exchange platforms, considering the highly fragmented and unorganized spot market”, he added. MCX is India’s largest commodity futures exchange and gold is its flagship commodity.

In the panel discussion: ‘Managing Price Risk in Bullion through Derivatives’, speakers raised concern on the volatility in gold prices and suggested using futures and options contracts on the commodity exchanges for protecting businesses from adverse price movements.

Abdul Nazar, Head – Bullion & Export, Malabar Group, emphasised the need for retail jewellers to use gold futures on the exchange for price risk management on gold stock.

Keyur Sha, CEO, Precious Metals, Muthoot Pappachan Group, said hedging in gold futures is a necessity in today’s time as an insurance product enables one to meet any unforeseen circumstances with respect to one’s life or property. It helps in reducing the investment in working capital for small-sized jewellers, he added.
Standard for gold bars

James Jose, Managing Director, Chemmanur Gold Refinery and Secretary of the Association of Refineries and Mints, pointed out while the Indian commodity exchanges accept only LBMA certified gold, about 40 per cent of the domestic gold consumption is of bars refined by domestic gold refiners that is BIS certified. He urged the government to soon come up with a good delivery standard for gold bars produced from ore and scrap by domestic miners that will be acceptable for trading on exchanges.

According to G Chandrasekhar, Commodities Market Specialist, MCX should conduct continuous education and training programmes among market participants on hedging of gold which would help imbibe the nuances of gold trading. The volatility in gold prices due to geopolitical tensions raises a case for retail jewellers to hedge their exposure to the yellow metal.
Options trading

Sivanshu Mehta, Head- Bullion, MCX, said the options trading in gold could even be a superior alternative to futures trading. He urged the market participants to increasingly use the MCX gold options contract as it would ensure that the risk faced by them is neutralized.

Rajalakshmi Nirmal, Senior Deputy Editor, BusinessLine, moderated the panel discussion..............BL