- Indian investors have shed their price sensitiveness and are buying gold, which is expected to scale $850 per ounce from current $820 level
- India could see highest gold import of 800-900 tonnes to meet demand
- Huge gains from stockmarket and real estate boom is seeing greater
liquidity and investments in gold
- Stockmarkets too seem to have no dearth of investors as experts see no diversion of funds for gold purchase
- Festive spirit seems lacking in the automobile sector despite incentives to woo buyers, many of whom have put off purchase due to high interest rates
- Consumer durable companies are banking on festive buying to make up for low sales in previous months
- Festive gift buying riding on good Q2 corporate results
***For Indian investors, this year's Diwali is certain to be a long one. The stockmarket boom and steep rise in gold prices in recent times has made the festive sparkle brighter for thousands of investors who seem equally bullish about striking it rich in the long term. Going by the amount of gold bought by investors despite the unprecedented rise in the price of the yellow metal, it seems Indian consumers have shed their reputation of being price sensitive. On November 6, gold prices reached a 28-year high of over $820 per ounce from $632 per ounce in February. In India, it scaled an 18-month high of Rs 10,440 per 10 grams during the festive season.
But this obviously did not dampen the buyers' spirit, because India could well end 2007 with record gold imports of around 900 tonnes against last year's 716 tonnes. In the January-June period, gold imports were 508.2 tonnes, a rise of 72 per cent over 307.1 tonnes in the corresponding period in 2006.
"Going by the trends, India could see the highest import of between 800 tonnes and 900 tonnes this year," states K. Shivram, VP-India, World Gold Council. "The demand is bullish despite volatility in price. The feelgood factor, with the economy doing well and the huge gains in stockmarket and real estate, has seen some of the gains going towards investments in gold."
According to London-based metals consultancy GFMs Ltd, India has accounted for over 70 per cent increase in jewellery demand in the first half of 2007. In fact, bar hoardings have also witnessed an 80 per cent increase largely due to gains in India.
Says D.H. Pai Panandikar, market analyst, RPG Foundation, "In the past three years, share prices have been zooming up and people feel they may have peaked, while gold and other commodities are expected to shoot up further in tandem with crude oil prices due to supply constraint. So there is a gradual shift from the stockmarket to the commodities market."
Sunil Sinha, senior economist, crisil, feels there has been a change in the way Indians look at gold, with private banks selling the idea of diversifying the investment portfolio to include not just stocks. Says he: "The multiple avenues for investments have seen a shift in preference. Youngsters, who see the way the global market is evolving and are more receptive to new ideas, see gold as a good investment."
Manish Sonthalia, vice president, Motilal Oswal Securities, also shares the optimism of gold prices scaling fresh highs because of its straight linkage with the US dollar.
"As long as the dollar weakens, gold will continue to rise. If gold prices went up because of a real movement of gold in the market then it could have been a different thing, but that has not happened. In fact, the adjusted price of gold to inflation shows that it is still cheaper than its price in 1973. So, at today's prices, gold is a good investment," he says.
Market experts, however, maintain that there is no real diversion of funds from the capital markets to gold because then the prices would have actually gone through the roof. They feel there is enough fund flow in the market to cater to both the capital markets and the precious metal, so diversion is not required. Says Sonthalia: "The interest in the market is still pretty high and there is enough investment happening, even from retail investors."
"We have not seen any meaningful correction in the market despite the fact that we have been hearing of a 10 per cent correction since the market was at around 14,500. The market has not got an opportunity to correct because of the continuous rally. The participatory notes (P-Note) issues was a mere blip in this scenario," states Dhirendra Kumar, CEO, Value Research.
In the aftermath of market regulator sebi taking corrective steps, particularly on the participatory notes issue, the fii fund inflow slowed down a bit but there is still substantial investment from them. This, in turn, has given room for retail investors to move into the market, and currently there is a healthy participation from them, which has been boosted by market performance and the second quarter results of companies.
"Indirectly, the stockmarket has helped increase the disposable income of people, who while splurging on festivities are investing in gold as a safe option," says Ashish Gupta, joint managing director, Aerens Gold Souk, which has been witnessing teeming crowds.
Adds Kumar: "Increasingly, people are finding it difficult to park their cash in appreciating assets. Earlier, it was real estate, but now, since most of that business has become legitimate, the attraction has gone. So investing in gold seems more profitable." Interestingly, with leading banks becoming retailers of hallmarked gold, it has become much easier for people to buy gold.
Mall-a-mall: Booming markets have increased disposable incomes, hence the crowds
Of course, the festive season provides its traditional push to gold sales. Says Kanwar Vivek, GM, Retail Liabilities Group, ICICI Bank Ltd, it is difficult to quantify the demand for gold during Diwali as 25-30 per cent of purchase is for gifting and for marking an auspicious occasion. "With prices ruling high, people are thinking twice before buying gold. Yet, there has been around 30-40 per cent increase in volumes over last year, when we had around 100 per cent growth over the previous year," he says.
High prices may have led to small buyers putting off casual buys, but there seems to be no dearth of demand from those planning weddings or with surplus cash. "The increase in gold and silver prices has had some impact, but now customers are returning in the expectations of a further rise in prices and thus better returns on investment," says A.R. Goyal, marketing director of state-owned MMTC, a major bullion channelising agency, which clocked Rs 23 crore sales at its eight-day gold festival recently.
Banks too are witnessing big corporate demand for gold guineas as gift articles this year. The gifting season normally extends from October till year-end. Cashing in on this, many consumer durable and electronic companies have come out with schemes and gifts to woo consumers and make up for the rather lean season that preceded the current consumer boom.
Says a spokesperson from Korean consumer electronics giant Samsung: "We are looking at a 41 per cent growth during the festival season alone with a sales target of about Rs 1,200 crore against last year's Rs 850 crore." Targeting $1.3 billion sales for the full year, Samsung is eyeing sales of 5.5 lakh TV sets during the festive season from October 12 to November 10. Of this, 50,000 are LCD TVs. In October itself, the company sold around 35,000 lcds. In the home appliances segment too, the company expects to clock a 30 per cent growth during this season.
With the increase in disposable income in urban centres, the malls and shopping complexes are abuzz with buying activity. For instance, last Sunday before Diwali, electronic superstore Reliance Digital had estimated 4,000 footfalls with Rs 15 lakh worth sales by late afternoon, according to market sources.
What was pushing the companies' fortune was a large amount of impulsive buying by consumers ahead of Diwali. Said a 55-year-old professor at a Noida mall: "I had come to hunt for a good refrigerator to replace my old one this Diwali, but am going back with a microwave oven because there are a lot of free gifts bundled with it just for today." Another Delhi family on a day out to buy gifts for relatives ended up purchasing Rs 10,000 worth of goods for their household.
Auto marketers, however, are facing tough times despite attractive discounts. With high interest rates proving a killjoy, Bajaj and TVS in the two-wheeler segment, and Honda Siel Cars and Skoda in the passenger-vehicles category, feel the festive season will end without a sparkle. Hyundai Motors, which has just launched the low-cost i10, is already seeing a dip in customers availing financing schemes from 85 to just 15 per cent, say industry sources.
Though Union finance minister P. Chidambaram has asked bankers to re-look at interest rates, which have risen by 3-3.5 percentage points since last December, auto companies are taking steps to cushion the impact on customers. So, alternative marketing and out-of-the-box thinking is the order of the day, with the country's largest carmaker Maruti Suzuki India (MSI) leading the way with offers like easy finance and getting their employees as well as their family and friends to buy a vehicle. These did pay off as Maruti clocked sales of 64,258 units in the domestic market in October. As an added incentive, Maruti is also offering a discount of Rs 10,000 on exchange of old cars.
Similarly, Toyota Kirloskar Motors has come up with the 'Touch Corolla, Feel Happy' campaign which allows buyers to switch a car every three years. "It is a unique low EMI buyback policy, with customers having the option of changing his old car for a new one at the end of three years. This campaign has enabled us to achieve September and October sales targets," inform company sources.
The silver lining, as Panandikar observes, is that people are increasingly becoming wiser as far as investments are concerned. Says he: "When incomes increase, the tendency towards savings increases much faster than consumption, because consumption needs are limited and need is felt to save for the future."
So, whether in gold, real estate or the stockmarket, investors have much to rejoice this festive season with its promise of rich dividends in the future.
By Lola Nayar, Arindam Mukherjee and Nivedita Mukherjee