The Indian diamond industry, recognised as a global leader in cutting and polishing diamonds, is poised to experience a downturn in cut and polished diamond (CPD) exports, projected to fall to around $15-16 billion in the fiscal year 2023-24.
This represents a significant decrease, marking a five-year low. The reduced demand from the primary markets, the United States and China, which collectively account for approximately 65% of India’s diamond exports, underpins this trend.
Facing various challenges, including shifts in consumer spending, the rise of lab-grown diamonds, geopolitical unrest, and sanctions on Russian-origin diamonds, the sector’s outlook appears cautious.
Demand Fluctuations and Price Adjustments
The demand reduction in key markets has led to a notable contraction in exports by 28% to just above $13 billion in the initial ten months of FY 23-24, a sharp fall from previous highs. This reduction is accompanied by price adjustments, with decreases observed across different diamond sizes due to an imbalance in demand and supply.
Shifts in Consumer Preferences and Competition
The growing trend of consumers opting for alternative discretionary spending, along with a rising interest in lab-grown diamonds due to their affordability and ethical advantages, has begun to affect the traditional diamond market. This shift in consumer preferences is steering a segment of buyers away from natural diamonds, subsequently impacting export statistics.
Geopolitical Influences and Economic Sanctions
Geopolitical tensions and the impending impact of G7 nations’ sanctions on Russian-origin diamonds pose significant logistic and operational challenges for Indian CPD players. These sanctions are expected to be monitored closely due to their potential to disrupt the supply chain and affect export volumes.
Sector Outlook and Future Projections
The industry outlook remains negative, with no significant recovery anticipated in FY 24-25. The challenges faced by the sector are likely to persist, affecting profitability, operational income, and gross cash accruals. The price correction and high inventory levels at the start of FY24 have impacted profit margins and the scale of operations, leading to a more pronounced decline than initially anticipated.
CareEdge Ratings has revised the sector outlook to negative, affecting the ratings of 29 investment-grade CPD segment entities, which account for about 35% of the Indian industry. This revision reflects the broader industry challenges and the need for strategic adjustments by firms to navigate the current landscape.
Entities focusing on smaller carat diamonds (below 0.3 carats) are expected to be somewhat insulated from the broader market challenges, given the limited price erosion and impact of LGD diamonds in this segment.
Colin Shah, Managing Director, Kama Jewelry, states “the last one and a half year has been a period of constant economic turmoil for the diamond industry amid constant ongoing geopolitical crises, ranging from Russia-Ukraine war to Israel-Hamas conflict”.
The Indian CPD industry is navigating a complex array of challenges, marked by changing consumer behaviours, economic pressures, and geopolitical uncertainties. While there may be potential for slight improvements in market conditions towards the year’s end, the industry’s ability to adapt to these shifts will be crucial for its sustained growth and stability. The future trajectory will largely depend on economic recovery in key markets, the geopolitical climate, and shifts in consumer preferences towards diamond jewellery.
