Fitch sees muted demand for gems and jewellery industry in 2012

The Indian gems and jewellery industry will continue witnessing muted demand in 2012 with volume growth of below 4 per cent for the overall segment.

The low volume growth may possibly be attributed to a reduction in discretionary spending both in the export and domestic markets.

However, a lean-cost structure adopted by companies in the sector and limited further downside of macroeconomic factors impacting jewellery demand are likely to limit further deterioration in operating margins experienced in 2009.

According to ratings agency Fitch Ratings, while short-term risks in the global economy have fallen, the continuation of household balance sheet deleveraging (particularly in the US) and a focus on savings are likely to limit discretionary spending.

Demand from traditional export markets (the US, Hong Kong, UAE) has improved from 2009 levels, given relative improvement in their economic activity from the 2008-2009 crisis period.

"While volume growth has been lower than that observed pre-crisis, demand (in volume terms) in 2012 is unlikely to fall below 2011 levels," Fitch said in a report on the sector.