Jewellery Stocks Rally Ahead of Diwali on Gold Price Correction

Jewellery stocks in India saw a notable rally on October 5, driven by pre-festive season demand and a correction in gold prices. Kalyan Jewellers surged 4.5% to around Rs 540, while Titan gained 1.7% to Rs 4,592.50. Gold prices dropped to Rs 1,49,040 per 10 grams, a 3% decline over the past week, making jewellery more affordable ahead of Diwali on November 8.

The rally follows a challenging month for the sector, particularly after the Prime Minister's appeal in early September to avoid unnecessary gold purchases. This led to a significant drop in jewellery stocks, with Titan falling about 11% from its early September levels. Analysts attribute the recent bounce to oversold conditions and a broader market rebound.

Titan and Kalyan Jewellers are expected to release their Q2 business updates soon. The high base from last year's early festive season and the later timing of festivals this year could make Q2 growth appear softer. Investors will be watching for like-to-like growth, buyer trends, and wedding bookings as key indicators.

Risks for jewellery stocks include policy changes, gold price volatility, and high valuations. Titan is trading at about 70 times earnings, while Kalyan is at 38 times, leaving little room for error. The upcoming festive season, particularly Dussehra on October 20 and Diwali in early November, will be critical in determining the sector's performance.