RBI's late Wednesday decision to liberalize gold imports by private trading houses fired up jewellery stocks in Thursday's market, with some rising by as much as 20%. The central bank's decision also led to softening of gold prices to Rs 27,950 per 10 grams in the Mumbai market, compared to Wednesday's close of Rs 28,725 - a difference of Rs 775. This is the lowest gold prices have fallen since last July when RBI and government imposed several restrictions on imports of the yellow metal.
RBI also allowed gold metal loan, popularly called gold on lease by jewellers who, rather than buying the yellow metal directly, take gold from banks on loan and later pay back the banks. Leading bullion traders said that while campaigning for the Lok Sabha elections, they had requested top BJP leaders to relax restrictions on gold imports and the latest step was a gift from the incoming government.
Last July, the central bank had banned gold imports by private trading houses to rein in a runaway current account deficit and support a plummeting rupee. Along with this, the government decision to impose a 10% import duty had created artificial supply constraints for the yellow metal in the country and left prices at an elevated level even though prices in the international markets had softened as risk-taking ability of people rose. The high price also limited demand for gold which directly hit all the stakeholders in the gold business - importers, traders, jewellers, et al.
According to a report by Edelweiss Securities, around 7% of the industry used the gold on lease model before the ban in July last year, and RBI's move to allow this will help jewellers sharply reduce debt, which in turn will boost their return on capital and also improve working capital cycle.
"Though the norms are applicable with immediate effect, there could be procedural delays of 30-45 days in implementation. However, Titan has an edge as it also has the option of using international hedging till then," the Edelweiss report noted.
The new stipulations will improve gold supply, which is expected to increase from current 25-30 tonnes a month to 55 tonnes, and will also reduce premiums which is likely to drop to $20 an ounce from a peak of $160, the report pointed out.
Despite a Rs 300-crore net selling figure by FIIs, the nifty on NSE closed at a new life high, at 7,276, up 24 points on the day, while the closed 76 points higher at 24,374, just 2 points shy of its all-time closing high in Thursday's market as strong buying in PSU stocks continued. The day's rally also left investors' richer by Rs 1 lakh crore with BSE's market cap at Rs 84.9 lakh crore, also a life time peak.
Among the index shares, NTPC rallied 5.3% to Rs 154 while Coal India gained 4.8% to Rs 390. The rally in NTPC and other power stocks came on the back of expectations that the new government will push ahead for reforms in the sector while Coal India, the largest producer of the fuel in the world, rallied on hopes of a division of the PSU behemoth that will kick in operational efficiencies. Among the other leading gainers were Maruti, up 4.4% at Rs 2,264 and Sesa Sterlite, up 3.9% at Rs 259. Among the handful of laggards were Hindalco, up 2.8% at Rs 155, and BHEL, down 2.8% at Rs 264.
Source:- timesofindia.indiatimes.com
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