Shares of gems and jewellery firms surged on the BSE on Monday as investors cheered the lower-than-expected goods and services tax (GST) rates on the sector.
The Centre announced 3% tax on gold jewellery, which was in line with the 2-6% rates mentioned in the GST draft rules.
Analysts reckon that the organised sector would gain under GST as it would increase the compliance cost for the unorganised sector.
Titan Co. Ltd rose 17%, the highest among the jewellery stocks, to close at ₹552.40.
Shares ofseveral jewellery firms including Gitanjali Gems Ltd. and Tribhuvandas Bhimji Zaveri Ltd. closed higher.
“Against the cumulative current tax rate of 2%, the final GST rate at 3% is higher, while the import duty will continue at prevalent rates,” ratings firm ICRA said.
ICRA expects the same to be passed on to end customers and the higher tax is not likely to cause any major disruption to the gold jewellery demand.
According to Ambit Capital, unorganised sector accounts for 80% of the $40 billion jewellery market and enjoys low direct tax compliance.
GST brings the entire jewellery chain in the tax net. It will increase the compliance cost of unorganised jewellers and hence narrow the gap between making charges of unorganised and organised jewellers, it said.
Brokerage firm Motilal Oswal said Titan, which has only 5% share of the total jewellery market in India, could be a gainer over the medium term post GST implementation. “Given the pricing power of the Tanishq brand, we do not think passing on the increase of 1% will be any problem,” it said.
