Pent-up demand to curb diamond sector revenue slide

New Delhi: The recent upsurge in spending on diamonds, riding on a combination of pent-up demand and recovery in retail offtake in key markets such as the US and China, is expected to help India's diamond industry contain its decline and close this fiscal with revenue of over $15 billion, according to a report by Crisil.

Once the Covid-19 pandemic took hold, the industry was expected to see a third shaved off its top-line this fiscal. However, this could now get arrested at around 20 per cent, the ratings agency said. Sluggish demand and extended lockdowns globally saw exports plunge to $5.5 billion in the first half, almost halving on-year. In the third quarter, however, exports have risen to an estimated monthly average of $1.6 billion, setting the industry up for a tryst with the $15 billion mark for the full year. According to Subodh Rai, Chief Ratings Officer, CRISIL Ratings Ltd, trends in recent months have been encouraging.

"Retail sales in the US and China have grown by about 3-5 per cent, which would provide the industry sustained momentum over the medium term. While there are new lockdowns in some parts of the EU, the launch of Covid-19 vaccines across the globe is expected to mitigate a massive disruption hereon," he said.

The analysis factors inputs from CRISIL's rated portfolio of 70 polished diamond exporters, which represent close to 30 per cent of the industry. At the start of the fiscal, the industry was grappling with significant build-up of inventory — comprising both roughs and polished diamonds — over the previous seven months. While prices of roughs had remained firm, weak demand meant the prices of polished diamonds were falling, thus setting the industry up for significant inventory losses.

Amid the weak demand scenario, however, the miners reduced the prices of roughs by almost 10 per cent around the end of the second quarter. With demand also on the rise gradually, the prices of polished diamonds increased by almost 2 per cent in the third quarter. This helped the industry wipe out a portion of the operating losses of the first half. With prices now stabilising, operating profitability is expected to remain intact for the full year.