Vikash Final Desk.docx

Study on gold import patterns of large jewelers in the Delhi NCR region

A PROJECT REPORT ON STUDY ON GOLD IMPORT PATTERNS OF LARGE JEWELERS IN THE DELHI NCR REGION Conducted at

State Trading Corporation of India Ltd. SUBMITTED BY

VIKASH KUMAR IB1715261 In partial fulfillment of the requirement for the award of the Post Graduate Diploma in Management

PGDM(MARKETING) IN

Balaji Institute of International Business(BIIB) S.NO 55/2-7,Tathawade,Wakad,Pune-411033

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Study on gold import patterns of large jewelers in the Delhi NCR region

ACKNOWLEDGEMENT I dedicate this page to all those who have silently or actively left an indelible mark on my project report, so that they may be given credit which they richly deserve. I am highly indebted to Mrs. Sonal Taneja, Deputy General Manager, Bullion division of the State Trading Corp. of India, for her guidance and constant supervision as well as for providing necessary information regarding the project & also for her support in completing the project. I would like to take this opportunity to thank Mr. AK VERMA General Manager (Marketing) & my project mentor, Mr. VIRENDER BEJOTRA Chief Manager (Marketing) & Mr. Ramesh Kumar Ram Deputy Manager (Marketing) for mentoring me throughout the project and adding valuable inputs. I would also like to thank all the staff members of STATE TRADING CORPORATION OF INDIA LTD. for providing me a very good working atmosphere which helped me to complete the assignment project within the scheduled time. I would also like to thank Nitesh Behare Associate Professor (BIIB), who is our internal mentor and Mr Mihir Badiani, who is our external mentor for helping me throughout the project. I would like to express my sincere thanks to Prof. Col. A. Balasubramanian, Dean, BIIB and Dr. Suresh Chandra Padhy, Director, BIIB, for guidance and support in the project without whom, this project would not have been complete. VIKASH KUMAR (IB1715261)

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Study on gold import patterns of large jewelers in the Delhi NCR region

INDEX Page no.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

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Introduction Objective Gold demand Research methodology Market Analysis Competitor analysis Recommendations Conclusion Appendix – I Appendix – II

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Study on gold import patterns of large jewelers in the Delhi NCR region

1. INTRODUCTION Gold is a precious metal. It has emotional, cultural and financial value and different people across the globe buy gold for different reasons, often influenced by a range of national socio-cultural factors, local market conditions and wider macro-economic drivers. Demand for gold in India is interwoven with culture, tradition, the desire for beauty and the desire for financial protection. Over the past five years, annual demand has averaged 895 tonnes, equivalent to 26 per cent of total physical demand worldwide. For many years the most avid purchaser of gold in the world, India remains one of the leading markets for gold globally today. However, as India has little domestic supply of gold, demand is primarily satisfied by imports. The cost of these imports is partially responsible for today’s current account deficit (CAD). The strong gold price performance was a positive for investors and producers and was symptomatic of a more profound shift in sentiment: a growing recognition of gold’s role as a wealth preservation and risk mitigation tool. With the implementation of GST, a paradigm shift is expected in the way of doing business in India. A greater consolidation will be seen in the markets and the role of organized sector will be enhanced. This will particularly be good for gold business of STC. The gems and jewelry sector plays an important role in the Indian economy, contributing around 6-7% of the country’s GDP.

Company description: The State Trading Corporation of India Ltd. (STC) is a premier International trading company of the Government of India engaged primarily in exports, and imports operations. It was set up in 1956 primarily with a view to undertake trade with East European Countries and to supplement the efforts of private trade and industry in

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Study on gold import patterns of large jewelers in the Delhi NCR region developing exports from the country. The Corporation is registered as an autonomous company under the Companies Act, 1956 and functions under the administrative control of the Minis try of Commerce & Industry, Govt. of India. STC has played a vital role in India’s economy. It has helped the country to earn scarce foreign exchange by undertaking development of exports when called upon by the Government to do so. The total foreign exchange earnings of the company by way of exports, trade margins, etc. during 2016-16 amounted to Rs. 742.90 crores

Form of Ownership: The State Trading Corporation of India Ltd. (STC) is a premier International trading company of the Government of India. It has paid up equity of Rs. 60 crores of which 90% is held by the govt. of India. The company also has one wholly owned unlisted subsidiary company, STCL Limited which is also a nominated agency to import gold by the government of India. The company is also listed on the National Stock Exchange & Bombay Stock Exchange. And the share prices on both the exchanges have moved in the past year in near resemblance with the movement of the two indices with Rs.874 crores market capitalization. The Corporation has played a key role in the Indian economy. In the preliberalization era, it acted as an arm of the Government of India not only to regulate foreign trade but also for intervention in the domestic market. The Corporation handled canalized exports and imports of large number of items varying from chemicals and drugs to bulk commodities such as edible oils, cement, sugar, newsprint, wheat, urea, etc. thereby ensuring timely availability and equitable distribution of mass consumption items as well as essential raw materials for the industry. Canalization also helped the nation to benefit from economies of scale and keeping a close watch on the scarce foreign exchange.

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Study on gold import patterns of large jewelers in the Delhi NCR region STC is one of the agencies nominated by the Govt. of India to import gold, silver and other precious metal into the country. STC imports Gold in 100 gms and 1 Kg bar from LBMA members as well as silver for traders/ jewelry manufacturers. Aiming to diversify the range of bullion activities, STC is also having its presence into the field of supply of gold/silver medallions in order to meet the customized requirement for Corporate/Institutional orders. STC has a well-established network of bullion associates across all the bullion active centres and ensures supply of hallmarked gold/silver medallions. Various PSU’s/Central & State Government Departments are inviting tenders at regular intervals to source their customized requirements of gold/silver medallions mostly for the purpose of rewarding/gifting their employees on special/auspicious occasions.

2. OBJECTIVE:  To conduct a market survey in the National Capital Region of India to study about the gold import patterns of large jewelers in the region.  The survey report also aims to provide in-depth analysis of gold market in the country.  Primary data that will be collected will also serve STC to understand the potential customers in a broad manner.

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Study on gold import patterns of large jewelers in the Delhi NCR region 3.GOLD DEMAND India is second largest importer of gold in the world. According to the World Gold Council (WGC), gold demand in India is likely to remain below its 10year average for a third year in 2018 as higher taxes and new transparency rules on purchases may cap last year’s rebound in buying.

The demand for gold in India can be categorized into the following types:

Jewellery demand Gold jewellery represents the largest source of annual demand for gold per sector. This has declined over recent decades, but it still accounts for around 50% of total demand. India and China are by far the largest markets, in volume terms, together accounting for over 50% of current global gold demand. The Asian and Middle Eastern markets are dominated by demand for purer, high-carat gold. Gold has been an

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Study on gold import patterns of large jewelers in the Delhi NCR region integral part of the Indian civilization throughout its recorded history. Gold has been consumed by Indians for centuries for both their aesthetic as well as investment value.

Investment demand Gold has unique properties as an asset class. Modest allocations to gold can be proven to protect and enhance the performance of an investment portfolio. Even so, globally, gold still only makes up less than one per cent of investment portfolios. However, this is changing and investors of all sorts are coming to accept gold as a reliable, tangible long-term store of value that has moved independently of other assets. The annual volume of gold bought by investors has increased by at least 235% over the last three decades. Gold can be used in portfolios to protect purchasing power, reduce volatility and minimize losses during periods of market shock. Gold is at an interesting juncture at present. The opportunity cost of holding Gold is high as equities continue to reach fresh records, the global economy is recovering and there are few threats to the financial system other than the large amount of debt that

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Study on gold import patterns of large jewelers in the Delhi NCR region has built up since the financial crisis. But, with global growth recovering, debt may be something that can be lived with, although it will no doubt come back to haunt the market at some stage. As such, there do not seem to be many pressing financial security needs for investors to be seeking safe-havens – at least not yet. Central bank demand The past decade has seen a fundamental shift in central banks’ behavior with respect to gold, prompted by reappraisal of its role and relevance after the 2008 financial crisis. Emerging market central banks have increased their official gold purchasing, while European banks have ceased selling, and the sector now represents a significant source of annual demand for gold. Central Banks sold 7,853 tonnes of gold between 1987 and 2009; between 2010 and 2016 they bought 3,297 tonnes.

Technology Gold has long been central to innovations in electronics. Today the unique properties of gold and the advent of 'nanotechnology' are driving new uses in medicine, engineering and environmental management. Gold can be used to build highly-targeted methods for delivering drugs into the human body, to create conducting plastics and specialized pigments, or advanced catalysts that can purify water or air. It has also been used in dentistry for centuries. Although most technological applications

use low volumes of gold, their impacts are very diverse and widereaching. India imported 24 billion dollars’ worth of gold in 2016 with Switzerland as the leading nation amongst exporters with 13 billion dollars and South Africa, UAE and USA being other large exporters to India.

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Study on gold import patterns of large jewelers in the Delhi NCR region Influencing factors Like most commodities, the price of gold is driven by supply and demand, including speculative demand. However, unlike most other commodities, saving and disposal play larger roles in affecting its price than its consumption. Most of the gold ever mined still exists in accessible form, such as bullion and massproduced jewelry, with little value over its fine weight — so it is nearly as liquid as bullion and can come back onto the gold market. At the end of 2006, it was estimated that all the gold ever mined totaled 158,000 tonnes (156,000 long tons; 174,000 short tons). Given the huge quantity of gold stored above ground compared to the annual production, the price of gold is mainly affected by changes in sentiment, which affects market supply and demand equally, rather than on changes in annual production.

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Study on gold import patterns of large jewelers in the Delhi NCR region

4. RESEARCH METHODOLOGY: A primary market survey was conducted in the National Capital Region of India on large jewelers who import gold form the nominated agencies in India for the purpose of making jewelry for sale in the domestic market as well as for export purposes. 5 areas were covered i.e. Bank Street in Karol Bagh, Gold Souk mall in Gurugram, Jewelers near Preet vihar metro station, south extension near AIIMS and Greater Kailash market. The survey broadly covered businesses which were into trading and imported gold for the purpose of selling to domestic smaller jewelers. But the research had limited access to the respondents as either the owners remain at the head offices located in other cities of the country or the managers present were unwilling to give the information because of being uninitiated of their authority or some other mental reservations thus, they had a fear of consequences of participation. In few cases, the managers who were participants in the survey didn’t have adequate knowledge regarding the business nor the adequate motivation to cooperate. Thus, the amount of disclosure was not adequate in majority of cases. But sufficient data was collected for drawing a competitor analysis. Likert scale was used to gauge customer sentiments on various parameters. Also rating questions were asked to find out the customer inclinations for future. The elements were selected individually and directly from all the major jewellery businesses in the NCR region. The average survey lasted 6-7 minutes. The survey was designed to seek

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Study on gold import patterns of large jewelers in the Delhi NCR region structured responses from the target group. But all these obstacles were already expected in a survey involving big gold jewelers as they are naturally slightly reluctant to share their business information. The major problem in the survey was of “don’t know” responses of the store managers. All code of ethics was followed during this research and the right of companies to dissociate themselves from the research project was respected.

Managers and owners at 18 firms revealed their sources of gold. 9 of those sources their gold from more than one source. Metals and Minerals Trading Corp. (MMTC) was the most common government nominated agency. Also, many gold importers preferred MMTC-PAMP, which is a joint venture between MMTC and Switzerland based PAMP SA firm. More than 70% of the firms agreed that they also involve local traders to source their gold

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Study on gold import patterns of large jewelers in the Delhi NCR region

5. MARKET ANALYSIS The bullion division of STC serves the big gold importers in the country through its various centres across the country. The import of gold is done in accordance with the rules and procedures mentioned in the Foreign Trade Policy of India 2015-20. The imports are also guided by time to time circulars issued by the Reserve Bank of India. The Indian gems and jewelry industry is one of the world’s most competitive markets due to the low cost of production and highly skilled labour. Hedging: The company does not take exposure in volatile commodities. It makes gold purchases only against confirmed orders backed by appropriate margin money. Guidelines for the company are in place

requiring forward foreign exchange cover to be taken in respect of transactions involving STC funds.

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Study on gold import patterns of large jewelers in the Delhi NCR region Being on this position also shows that India has a great opportunity to move up and be present across all the points in the value addition chain. Doing so can generate the next wave of growth and profitability as India consolidates its position in low-value gem processing and captures a greater share of high-value gem processing and Jewelry making. This move is also important as other low-cost countries like China are striving hard to wrest share from India in its current areas of strength. Threats: Uncertainty surrounding global projections has increased and risks continue to be tilted to the downside. This reflects the possibility of prolonged period of heightened policy uncertainty taking electoral outcomes of the next year’s general elections into consideration. In few past years high volatility has been observed in the prices of bullion as well as Indian rupee-US dollar exchange rates. Change in government policies like providing licensees even to the private firms to import gold when the balance of trade improves or current account deficit decreases. The bullion import turnover of STC has decreased from Rs. 4,711 crores to Rs. 4,272 crores in 2016-17 financial year. But, if we look at the share of bullion division in net imports of STC it has increased from 53.93% to almost 67%. The basic precious metals like gold and silver contribute 55.11% of the total turnover of STC. Oil and Gold prices have tended to be positively correlated, although oil prices fell more severely in the financial crisis, while Gold initially sold off but then benefited from safe-haven buying.

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Study on gold import patterns of large jewelers in the Delhi NCR region Gold prices haveclimbed 30 percent and oil prices have climbed129 percent. From the lows to the price levels inlate November 2017, Gold prices are up 23% and oil prices are up 118 percent.

A greater insight is obtained when we take a deeper look into the bullion department of STC. Though the bullion purchases of stock in trade is reduced but the purchase of gold has increased in 2016-17 fiscal thus reflecting a strong market sentiment for gold.

Silver purchases have shown sharp decrease this fiscal.

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Study on gold import patterns of large jewelers in the Delhi NCR region India has seen a strong import in gold in past few years. According to the World Gold Council (WGC), gold demand in India is likely to remain below its 10-year average for a third year in 2018 as higher taxes and new transparency rules on purchases may cap last year’s rebound in buying. The GFMS estimated India’s gold imports in the December quarter at 140 tonnes, taking total imports to 780 tonnes by the end of the year. “Hallmarking rules will be the next important development to look out for, specifically the timeline and implementation plan. This will cause a rush to convert jewelry to the standardized 22 carats, 18 carats and 14 carats purity. This will create additional demand and see many small jewelers exit the trade.

If we go by the technical analysis, then the total gold imports in 2018-19 fiscal will be at 735.81 tonnes approximately. The demand for gold may also be lower as jewellers had already kept stocked gold before the GST was rolled out.

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Study on gold import patterns of large jewelers in the Delhi NCR region Gold prices have generally consolidated in 2017 after their initial rebound in 2016, which followed a four-year bear market. Gold prices are 21 percent above the 2015 low and 33 percent below the 2011 high. Global economic growth has become more concerted in 2017 and that bodes well for fabrication demand for Gold - greater prosperity is also expected to breathe some life back into the depressed jewelry market, and that alone could have a significant impact on demand.

According to the World Gold Council, annual mine production of gold over the last few years has been close to 2,500 tonnes. About 2,000 tonnes goes into jewelry or industrial/dental production, and around 500 tonnes goes to retail investors and exchange-traded gold funds.

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Study on gold import patterns of large jewelers in the Delhi NCR region

6. COMPETITOR ANALYSIS: There are various other nominated agencies like STC which are import canalized goods into the country like Metals and Minerals Trading Corporation, Gems and Jewelry export promotion council, etc. Apart from the nominated agencies, the Reserve Bank of India has nominated 16 banks to import gold and silver in the 2018-19 fiscal.

The State Bank of India leads the pack of state-run lenders, while there are also international lenders like the Industrial and Commercial Bank of China and Bank of Nova Scotia.

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Study on gold import patterns of large jewelers in the Delhi NCR region

MMTC-PAMP India- which is a joint venture between PAMP SA Switzerland and MMTC Ltd, a government of India undertaking is the biggest competitor of STC. MMTC and MMTC-PAMP India has dominated the gold imports in the country. It is India’s first and only LBMA Good delivery refinery accredited for gold and silver. MMTC enjoys the position of market leader in the Indian bullion trade. There are also a lot of local traders into play even amongst the organised sector of jewellers because during some seasons gold demand is not that high as to source gold from a nominated agency. Private banks are preferred by most

of

the

jewellers

for

similar

reasons

even

though

the

premium/commission they charge is significantly higher than that of STC. Also, Tata brand “Tanishq” has a licence to import gold from foreign countries on their own.

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Study on gold import patterns of large jewelers in the Delhi NCR region

7. RECOMMENDATIONS:  Purity verification centres can be set up across major cities in the country, where customers can be encouraged to witness authentic verification of gold content and its purity in the item tendered. A nation-wide network of such centres can be implemented in a phased manner, thus valuing and empowering its customers across India.  An annual supplier meet can be organized in order to develop strong and long-lasting bond with the suppliers. Also, customerdealer meets can be organized once in each region in a year to ensure 100% customer satisfaction.  STC has been involved in many legal matters as the creditors are defaulting more than rarely on payments, thus the company can employ investment analysts who will build and maintain risk management and risk budgeting models. Also, research and maintenance of market index data is of prime importance to beat the competition. Correlations between volatilities and returns should also be analyzed by the analyst.  STC is very much regulated as compared to the large private banks those import gold as a result of which STC is unable to cater to the small demands of many customers even though the banks charge much higher premium to the customers. If at all possible, STC could lower its minimum gold quantity to import.

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Study on gold import patterns of large jewelers in the Delhi NCR region

8. CONCLUSION STC’s strength is that the market trust in its policies and procedures. Being a government agency has its advantages as well as some weaknesses. Its weakness being more regulated than banks and thus is loses its flexibility as compared to its major competitors. Many jewelers favour banks despite the banks charge much more commission/premium than STC on quantity of imports because there is a lower limit of gold imports that STC has to abide by, whereas, in most cases the demand for gold by the jewelers is lesser than the lower limit of STC. Import of gold is expected to increase in the next year, thus offers great opportunity for an institution like STC to increase its revenue by both, increased quantity of gold for already existing customers and also by increasing its customer base by attracting new associates.

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Study on gold import patterns of large jewelers in the Delhi NCR region

9. APPENDIX – I (Market survey questionnaire)

GOLD IMPORTS SURVEY State Trading Corporation of India Ltd. Jawahar Vyapar Bhawan, Tolstoy Marg New Delhi- 110001, INDIA

1. Name of the firm

Name of the official: Designation:

2. Location of the firm

3. What is the nature of your gold business? Exporter Domestic Jewellery Trader Other

4. What is the average requirement (per annum) of gold of your firm?

5. Where do you source your gold from?

State Trading Corporation of India Ltd (STC) Metals & Minerals Trading Corp. Ltd (MMTC) Projects & Equipment Corp. of India Ltd. (PEC) Handicrafts & Handloom Export Corp. (HHEC) MSTC Limited Diamond India Limited Nominated bank by the RBI Domestic gold refineries Local Traders Others

Please specify:

6. Reasons, if any, for not sourcing gold through a nominated agency.

7. Under which scheme do you source your gold?

8. What are the premium/commission charges paid by your firm?

9. Do you find the premium/commission reasonable? YES NO

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Study on gold import patterns of large jewelers in the Delhi NCR region

10.

Please rate the following parameters according to your preference by which you decide your supplier(s) /10

Trading margin

/10

Ease of doing business

/10

Personnel availability

/10

Service quality

11. Kindly rate your agencies on the following parameters ( rate out of 10 )

Agency name

Trading margin

Personnel availability

Ease of business

Quality of service

Overall satisfaction

A. B. C. D. E. 12. What kind of issues do you face while dealing with your agency?

13. What extra benefits/features/support do you look for while importing gold through an agency?

14. Do you look forward to change your current nominated agency in future? Yes No Maybe 15. Which vault/security agency you prefer for vaulting services?

16. Did you source gold from any other nominated agency in the past? (Please specify, if yes)

17. What were the issues/reasons that made you change your agency?

18. Kindly rate your previous agency 1 Unsatisfactory

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2

3

4

5

6

7

8 Satisfactory

Study on gold import patterns of large jewelers in the Delhi NCR region

10. APPENDIX-II: (Gold import survey data – NCR)

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