The stock of New Delhi-based PC Jeweller has more than doubled in value in less than a month. Here's what analysts make of the surge.
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A sparkling run in shares of a jewellery maker has more than doubled investors' money in less than 30 days. New Delhi-based PC Jeweller — a manufacturer and marketer of gold and diamond studded jewellery — has caught the attention of many on Dalal Street, at a time when gold is far from revisiting its all-time highs of August 2020 despite fears of a global recession.
PC Jeweller is India's fifth largest jewellery maker by market value, after Titan, Rajesh Exports, Kalyan Jewellers and Vaibhav Global.
Typically, gold shares an inverse relationship with equities. Its appeal as a safety bet — gold has been trusted for ages for its safe-haven appeal as a means to deal with inflation and financial uncertainty. Typically, gold stocks gets a boost when equity returns become unattractive. Simply put, a weaker appetite for risk across riskier asset classes such as shares makes gold more attractive — which works well for gold jewellers.
The PC Jeweller stock's relatively phenomenal performance comes at a time when Dalal Street benchmarks continue to lurk in a correction phase — more than 10 percent from their recent peaks.
The Nifty50, for instance, had touched the last of a series of record levels in October 2021 — the end of a near one-sided liquidity-driven rally that lasted 18-odd months. Sustained selling by foreign institutional investors since has played spoilsport in the domestic equity market.
Earlier this month, the company said it didn't have any undisclosed information that may have a bearing on its stock price and had been making timely disclosures of such information as per laws.
The statement came in response to clarification sought by BSE given the significant movement in its price, as a part of normal operations triggered by sudden moves in a stock and aimed at protecting investors' interest.
"Existing investors can use the opportunity to exit the PC Jeweller stock... The company's fundamentals don't support the sharp movement in shares," AK Prabhakar, Head of Research at IDBI Capital Markets, told CNBCTV18.com.
So what's driving the stock really?
Analysts say a normal monsoon season and the incoming festive season may spell some good news for the gold jewellery industry as a whole.
There is likely to be a marginal change in buying patterns with rising gold rates in the country following the hike in duty, according to Vijay Bhambwani, Head of Research-Behavioural Technical Analysis at Equitymaster.
On July 1, the government increased the customs duty applicable to gold in a bid to curb the import of the yellow metal. Gold imports now attract a basic customs duty of 15 percent instead of 10.75 percent previously.
"Buying ahead of wedding season is unlikely to change much due to the prevalent social customs. Investment buying may slow down a bit as the price has risen specifically in the domestic markets. Some of it may get compensated if the international prices fall further as Indians have traditionally continued favouring investing in gold in the past too when duties have been raised," Bhambwani told CNBCTV18.com.
The move is likely to help in containing India's current account deficit — or the shortfall between the money received by exporting goods and services and the money spent for importing goods and services. A CAD occurs when a country imports more than it exports.
The move on customs duty was to discourage the import of gold into India, which does not produce as much gold as it consumes.
A surge in gold imports puts pressure on the rupee, which has hit a series of lifetime lows against the greenback. On Tuesday, it slumped below the 80 mark against the US dollar for the first time ever, hitting a record low of 80.06.