The yellow metal is a symbol of wealth and good fortune in India, and the country has a long history of gold buying. To understand India’s affinity towards gold, one must understand the nation itself, where the purchase of gold has been entwined with India’s religious and cultural beliefs. Unlike other nations, the love of gold has transcended generations of Indians across the social strata. For instance, gold jewellery is not only considered an ornament but also an inevstment and store of value. In fact, Indians have always identified the yellow metal as a form of “money” and a means for wealth accumulation.
India holds more than 18,000 tonnes of gold. At today’s price level, that is nearly worth Rs. 50 lakh crore. The nation continues to be the world’s largest gold market, and has expanded significantly since liberalisation. It constituted 32% of global godl jewellery and bar and coin demand in 2010. Of this, godl jewellery contributes around 75% of India’s total gold demand, and the rest is accounted for by investment (~23%) and decorative, technology and industrial (~2%).
Gold demand is well distributed across India, with the four southern states (Tamil Nadu, Kerala, Andhra Pradesh and Karnataka) accounting for more than 40% of the nation’s overall demand. The remaining is divided among the western (25-30%), northern (20-25%) and eastern (10-15%) regions of the country. Despite being the largest sourceof gold demand, India’s jewellery consumption intensity is still relatively low, at 0.40 gram (as on 2009). We foresee larger per-capita gold consumption over the next decade as the nation’s favourable demographics and age profile are likely to ensure buoyant consumption growth.
Gold plays a fudnamental role in India for marriage ceremonies, and is considered a necessity rather than a luxury. The gold (along with other gifts) that a bride receives is called “streedhan” (stree is woman and dhan is wealth), and is a means of passing some of the family inheritance to daughters, as Hindu tradition dictates that family assets can only be passed down to sons. Thus, wedding-related demand makes up a substantial proportion of overall jewellery demand, particularly in south India. Given the nation’s young population, approximately 15 million weddings are expected every year over the next decade. And, with gold being an integral part of these weddings, we are looking at incremental demand of about 500 tonnes every year, alogn with another 500 tonnes of existing gold being gifted by oen family to another.
India’s gold investment revolution is gathering pace given its strong affinity towards this tangible source of wealth. Given the yellow metal’s importance as a safe haven in troubled times, characterstics of diversification and hedge against inflation, it is inreasingly making its way into investment portfolios today. In recent years, many gold-based financial instruments have been launched, including GETFs, gold-linked structured products, and bullion PMS schemes, apart from schemes like the India Post gold retail programme and gold-linked microfinance schemes.
Over the last ten years, India’s gold demand has risen at an average rate of 13% every year, outpacing the country’s real GDP growth by almost 6 percentage points. While estimates may vary, the broad consensus is that godl demand in India is likely to increase nearly 30% to touch 1,200 tonnes by FY21. And India will continue to be the largest buyer and holder of gold in the world.
Kanna SI
Head- Structured Products
Karvy Capital
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