Whalesbook
India's Gold Jewellery Sector Faces Sales Slump
India's gold jewellery retailers are navigating a tough market shaped by high commodity prices and increased import tariffs. While rising gold prices are inflating revenue figures, the significant drop in sales volume points to growing affordability issues and a shift in consumer sentiment.
Volume Drops, Revenue Grows Despite Headwinds
The organized gold jewellery retail sector in India expects a 13-15% decline in sales volume this fiscal year. This follows an 8% contraction last year, indicating a sustained weakening in consumer demand. The main drivers are persistently high gold prices, which jumped about 55% last fiscal, and the government's doubling of the customs duty on gold imports from 6% to 15%. This duty hike makes gold significantly more expensive for consumers. Despite the volume decline, revenue is projected to grow by 20-25% thanks to higher gold price realizations, not increased sales units. As of May 22, 2026, gold prices in India range from approximately ₹14,543 to ₹15,949 per gram for 22-karat and 24-karat gold, respectively.
Consumers Shift to Value and Investment
Consumers are adjusting to higher prices and reduced affordability by opting for lighter, lower-carat gold jewellery or studded pieces. This contrasts with a strong rise in investment demand for gold bars and coins, which has increased over 50% in the past two fiscals, while jewellery sales dropped 25%. This shows gold is still seen as a safe investment but less as an accessible luxury. Overall jewellery demand is expected to remain low due to these changing preferences and economic challenges. The World Gold Council reported a 19% year-on-year fall in India's gold jewellery consumption in the first quarter of 2026, with many consumers buying lighter items.
Margin Squeeze and Inventory Concerns
Retailers might see increased inventory holding costs, possibly rising to 160-180 days from 150 days last fiscal. This could lead to greater reliance on bank loans for higher inventory levels, potentially increasing overall debt by about one-third. While improved revenues and cash flow are expected to manage higher debt and keep credit profiles stable, gross margins could suffer from increased promotional spending and discounts aimed at boosting sales volume. Earnings before interest, taxes, depreciation, and amortization (EBITDA) are still forecast to rise by 20% year-on-year, mainly due to higher value realizations. The industry also faces liquidity concerns and potential job losses from the duty hike, with warnings of an increase in unofficial trade.
Policy Risks Impact Industry
The Indian jewellery sector's reliance on imports, now more expensive due to the customs duty hike, poses a significant policy risk. The government's aim to reduce imports and stabilize the currency has directly affected the sector, raising questions about long-term demand. Major retailers like Tanishq, Kalyan Jewellers, and Malabar Gold & Diamonds face higher operating costs and potential demand destruction. The industry is considering measures such as promoting lower-carat jewellery and increasing domestic recycling. The current economic environment, with inflation and possible recessionary trends, further pressures consumer spending on discretionary items like jewellery. The shift from jewellery to investment products like gold bars and coins suggests a potential structural weakening in the traditional jewellery market.
Investment Demand Offers Support
Looking ahead, while jewellery demand is expected to stay weak due to economic and inflationary pressures, investment demand may support the Indian gold market. Gold ETFs saw substantial inflows in the first quarter of 2026, and demand for bars and coins has risen significantly. This indicates that gold's role as a safe-haven asset and investment is growing, potentially offsetting the impact of declining jewellery sales. The World Gold Council forecasts India's total gold demand to fall to 600-700 metric tons in 2026, the lowest in five years, driven primarily by weak jewellery sales. Analysts generally remain positive on key players like Kalyan Jewellers, with a consensus rating of "Strong Buy" and a high average 12-month price target. However, these positive views must be considered alongside the ongoing challenges of high gold prices and regulatory changes affecting the jewellery retail sector.