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Gems and jewellery stocks surge on lower tax under GST

LiveMint logoLiveMint 05-06-2017 Ravindra N. Sonavane

Mumbai: Shares of gems and jewellery stocks surged on Monday as analysts saw goods and services tax (GST) on the sector as lower-than-expected.

Analysts said the rates on the sector were lower than industry expectations. Currently, tax on gold and jewellery is at 2% and the current GST rates is slightly higher at 3%, but lower than the 5% rate that was expected.

Broking firm Motilal Oswal said, in a report dated Monday, that it will not make too much of a difference to the category.

On Saturday, the GST Council fixed tax rates on gold and jewellery at 3%, a compromise between traders’ demand of 1.5% and the 5% demanded by the Kerala government.

“Given the pricing power of the Tanishq brand we do not think passing on the increase of 1% will be any problem; but, if GST is effectively implemented Titan which has only 5% share of the total jewellery market in India could be a gainer over the medium term,” said a report by Motilal Oswal.

Titan Co. Ltd surged as much as 11% to hit an all-time high of Rs524. The stock has gained over 57% so far this year.

Other gold and jewellery stocks also gained. Gitanjali Gems Ltd rose 8%, PC Jeweller Ltd 7%, Tribhuvandas Bhimji Zaveri Ltd 6% and Rajesh Exports Ltd was up 1%.

“A potentially higher rate would have promoted tax leakage while a 3% tax rate reduces the attractiveness of such leakage to a great extent for the unorganised sector. In addition, compliance levels are likely to go up under GST which would also facilitate the conversion from the unorganized sector or at least create a level playing field,” CLSA said in a report on Monday.

“This will likely provide a big boost to the organized sector and market leader, Titan should be a key beneficiary of the trend,” the report added. CLSA has upgraded the stock to “buy” from “outperform” and lifted its target price to Rs620 a share from Rs555 a share.

Credit Suisse has also upgraded Titan to “outperform” from “neutral” and increased its target price to Rs560 a share from Rs500 a share. Of the analysts covering the stock, 16 have a “buy” rating, nine have a “hold” rating, while eight have a “sell” rating, shows Bloomberg data.

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