Indian Diamonds Export could Shrink by a Fifth, Due to Coronavirus

The outbreak of novel coronavirus and subsequent sluggishness in global demand seem to be taking their toll on diamond exports from India. Diamond exports from India could shrink by a fifth to nearly $19 billion by the end of fiscal 2021, from $24 billion in fiscal 2019, if a recent study by CRISIL Research is to be believed.

Interestingly, in the first nine months of this fiscal, India’s total diamond exports by value were already down nearly 18 percent, on-year. Mind you that, close to 40 percent of these exports are to Hong Kong, which has seen dysfunctional local markets over the past year or so. Moreover, diamond exports to the island have been completely at halt since January 15 this year.

The n-CoV impact couldn’t have come at a worse time for an industry that has been buffeted by tepid demand, declining realizations, and the ongoing political conflict in Hong Kong. What is worse is that the analysts think even if the n-CoV outbreak is somehow contained in the next two months, Hong Kong is unlikely to get back to trade normalcy. Demand uptick from Hong Kong is also not likely to come before the middle of the next fiscal.

Senior Director, CRISIL Ratings- Subodh Rai, said that exports would continue to fall in the closing quarter of this fiscal, which typically accounts for roughly a third of India’s exports to the south-east Asian region. He said that given extended holidays in the region and shutdown of markets in the aftermath of the n-CoV outbreak, exports worth over $1 billion may be lost in this quarter alone.

Analysts are of the view that exports next fiscal would remain down or be at best flat because any traction in the second half would be offset by the weak first half.

Rahul Guha, another director of CRISIL Ratings, on his parts, said that more testing would be a stretch in payments from Hong Kong. These have been on time, so far. However, most of the payments have just started falling due. That can be attributed to the fact that a large part of the sales took place after October 2019, and bills are generally discounted for 90-120 days. If the revival of business in Hong Kong is delayed further, that would certainly weigh on the liquidity profiles of Indian exporters, he said.

One has to keep in mind that the other significant export markets for Indian diamonds include the US, with 35 percent share, followed by the EU, the Middle East, and Japan along with the rest of South East Asia, with nearly 10 percent each. The average receivable cycle for sales to the US and the European Union is 45-60 days, and that, in turn, helps ease cash-flow pressures.