Towards the second half of last fiscal, pent-up demand and stimuli had buoyed consumption of diamonds and jewellery in the US and China, which account for 75 per cent of India’s polished diamond exports.
Demand will also be bolstered by improving economic growth and declining unemployment, it noted.
Additionally, the report stated that the restrictions on overseas travel and lower spending on hospitality mean celebrations are largely restricted to spending on gifting, including diamond jewellery.
“Exports have been rising and averaging at USD 2 billion per month since October 2020. To be sure, there will be some moderation in the second quarter of this fiscal, which is a lean period typically.
“But, the festival season that begins in the export destinations from the third quarter will boost revenue to pre-pandemic levels. That will tantamount to a 20 per cent growth in diamond exports by revenue this fiscal,” CRISIL Ratings Director Rahul Guha said.
The report further stated that revenue from exports reached USD 16.4 billion last fiscal, marking a decline of 12 per cent, well below the plunge expected when the world went into unprecedented lockdowns.
But, as nations recovered well in the second half, the tumble in exports was halted, it added.
Meanwhile, the report said the onset of the second wave saw smaller labour-intensive polishing units facing 20-30 per cent labour migration.
The industry’s current operating rate is over 80 per cent, with sufficient inventory to tide over any production loss in the first quarter of this fiscal.
The pandemic has also improved the management of rough diamond inventory, the report said.
It added that earlier, the prices of roughs moved sharply versus polished diamonds, leading to stocking up of the former.
The pandemic then led to a correction in the inventory of roughs in the last financial year and this trend continues, it noted.
Diamantaires now tend to purchase roughs when there is visibility in polished-diamond sales.
CRISIL Ratings Associate Director Jumana Badshah said, “The prices of both rough and polished diamonds are expected to be firm and move in tandem this fiscal, which would steady operating profitability at 5-6 per cent.”
He added that net profit margin will expand 50 basis points to 2.5 per cent, supported by lower interest outgo. “That, and stable capital structures, will support the credit profiles of Crisil-rated diamantaires.”