Kalyan Jewellers India Ltd. shares have come under heavy selling pressure, falling more than 10 percent in the last four trading sessions. And the sharp drop has caught investors’ attention in light of the company’s record of growth and position as one of India’s biggest jewellery retailers.
The stock’s recent slide seems to be a product of more than one thing: the stock is down because of the market swings and the stock price has fallen on the back of the broader market and the stock’s demand from jewellery and profit booking is down from the previous months. For many of the analysts who analyze stock market professionals, the stock’s fall is not a result of a single major negative result from the company but a combination of sectoral and market-related factors.
One of the key triggers for the sell-off has been the weakness in the jewellery sector. Investor sentiment towards jewellery companies has been weakening after the Prime Minister of India made an appeal to consumers to not buy gold. And the market saw such a statement as potentially bad for gold buying and jewellery sales in the coming months. The stock of some jewellery companies like Kalyan Jewellers dropped considerably on the basis of the PM’s words.
The broader market environment has also contributed to the stock's decline. Indian equity markets have been under pressure due to rising geopolitical tensions, a surge in crude oil prices above $95 per barrel, and concerns about inflation. Investor risk aversion has led to selling across sectors such as consumer discretionary and retail stocks.
Another reason behind the fall is profit booking by traders and institutional investors. Kalyan Jewellers has enjoyed healthy growth in the past couple of years with aggressive showroom expansion, demand for organized jewellery retail, and market share. The stock had already been in a robust surge since then and was up significantly in fact very much before the current correction phase. Some investors may have taken profits in a more uncertain market environment, in the name of uncertainty as they are in a waiting room for investors and others are in a waiting room waiting for the market.
Market data also suggests increased trade volumes during the decline and institutional and retail investors are actively involved. Historically, high volume in a fall is a sign of a rising risk that market participants are more cautious in the market and prices can rise quickly. Previous heavy-selling episodes have pushed the stock to multi-month lows.
As a result, despite the recent correction, analysts are generally positive on the long-term outlook of organized jewellery retailers. Because consumer preferences are coming to trusted branded players, transparency is greater and disposable incomes are rising, jewellery retailers are seeing an opportunity to grow. HSBC recently identified Kalyan Jewellers as one of its top 10 favourite jewellery companies in the jewellery industry and its market position is very good.
Investors are also keeping a close eye on gold prices. Although gold prices hike inventory costs and the demand in the short term will be affected, the value of existing inventory will increase and revenue will be supported if consumer demand remains strong. Some brokerage firms still believe organized jewellery retailers will benefit from long-term structural growth trends when short-term volatility is not a big factor.
Kalyan Jewellers shares, however, are under pressure from investors looking at depressed stock market sentiment, gold demand being slow, and sectoral selling to continue. Investors will be keeping in mind what changes in business and festive season demand are going to be happening and how the stock will move next.
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