Jewellery stocks down on fear of liquidity crunch

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Jewellery stocks fell upto 6.5 per cent on Monday on profit booking amid fear of liquidity crunch into the sector due to withdrawal of gold deposit schemes. While the share price of Shree Ganesh Jewellery House fell by 6.53 per cent to close at Rs 32.90 apiece, that of Rajesh Exports plunged by 5.68 per cent to Rs 154.50 apiece on Monday.
Until now, jewellery companies were offering very lucrative returns on deposit schemes known popularly as gold deposit plans. Jewellers were offering returns as high as 18 per cent for two years under gold deposit scheme. The returns were even higher for larger tenure of scheme.
But, recently introduced new Companies Act limits the returns companies offer to deposit holders to 12 per cent. In fact, many jewellers offering higher returns will have to discontinue these schemes as their returns will not be as high as the promise. The Act also restricts total amount of deposits not to surpass 25 per cent of their net worth. Consequently, Tanishq, the market leader in diamond jewellery segment, withdrew its gold deposit schemes with immediate effect opening thereby, window for the others to follow. Tanishq, according to sources, was collecting Rs 1,000 crore from customers annually.
These collected funds, however, was used by jewellers as working capital as depositors buy jewellery on maturity of specified period. Now, with the revised Companies Act in place, jewellers will face a working capital squeeze going forward, said an expert employed with a jewellery company.
The new Companies Act treats funds generated through gold accumulation schemes as public deposits on which returns should not be extended over 12 per cent. “Now, there will a short term boost in jewellery sales followed by a lull period,” he added. On sudden redemption on public deposits, there will be an outgo of massive fund which may create a liquidity squeeze for a short term, he quipped.
Source: Business-Standard
Source:Bullion Bulletin

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