The government on Monday raised the import duty on gold and platinum by 2 per cent to 6 per cent, the second such increase in less than one year. The government wants to discourage gold buying as the precious metal is the biggest contributor to the import bill after crude oil.
Most analysts, however, attributed the selling in these stocks to a knee jerk reaction.
"Given India's penchant for gold for weddings and other religious ceremonies, a sharp fall in volumes is unlikely, in our view," global brokerage Nomura said, adding that "the hike in the gold import duties will only shift gold shipments to "unofficial channels".
In the past, imposition of import duty has had some salutary effect in moderating official gold imports. In March 2012, the government doubled the import duty on gold from 2 per cent to 4 per cent. As a result, gold import volumes contracted by around 25 per cent year-on-year during the first three quarters of 2012.
The additional imposition of import duty could lead to gold imports moderating to 750-800 MT. However, we do not expect gold imports to fall much more than that as consumption demand for gold (around 65 per cent of gold demand) and investment demand (nearly 35 per cent) have already moderated close to their averages.
"It would not have an impact on demand at all because the demand for gold and gold jewellery has remained strong even though the prices of gold have been rising... Gold and property have been two saviours for Indian households in the face of high inflation," Sanjeev Agarwal, CEO of Gitanjali Exports told NDTV Profit.
Shares in Gitanjali Gems traded 2.2 per cent lower as of 1.10 p.m. on the BSE while Titan Industries shares fell 2 per cent to Rs 270.80. Rajesh Exports shares were down 1 per cent to Rs 135.55.
In contrast, the broader Sensex traded 0.11 per cent lower at 20,080.