Can diamonds be investors’ best friend? – Economic Times

It is the season of festivals and weddings, and consequently , jewellery shopping. While gold remains a favourite investment-cum-consumption option, in recent years, many have opted for diamonds over the yellow metal.
The Diamond Insight Report 2015 released recently by DeBeers ranks Indians amongst the top buyers of the precious stone in the world. “Driven by a widening consumer base, economic development and increasing volumes, India’s diamond consumer market is now one of the world’s largest,” it says. And demand is only growing. “The Indian economy is in a growth phase and therefore, demand for a luxury item like diamond is bound to grow,” adds Suresh Surana, founder, RSM Astute Consulting.

What’s more, DeBeers forecasts a golden run for the stone. So should you head to the nearest jeweller right away?

DIAMOND AS INVESTMENT

How should retail investors rate diamonds as an investment avenue? “In India, diamonds are bought for adornment. However, people can consider investing in diamonds from a long-term perspective as demand is only likely to grow,” says Bacchraj Bamalwa, director, All India Gems and Jewellery Trade Federation.He says certifications from independent laboratories has played a big role in instilling confidence in retail investors, spurring demand for diamonds.

The DeBeers report, however, paints a subdued picture for the industry in 2015 on the back of a strong US dollar and low demand in China. But the long-term prospects remain bright. “Challenges faced by the sector in 2015 are expected to be short-term,” says Philippe Mellier, CEO, De Beers Group.

Going by the probability of demand going up, diamonds present an attractive investment opportunity . This apart, the abolition of wealth tax has added to the glitter this year. Note that diamond prices depend on the global economic scenario. A bleak outlook could result in a fall in prices. For instance, the diamond index has declined to 127.0 in September 2015 from 143.01 a year ago (see table).

UNDER THE MAGNIFYING GLASS

Though prospects for the `girl’s best friend’ look good, there are other parameters you need to consider while buying diamonds.

Despite certifications, buying diamonds continues to be tricky as unlike gold, there is no hallmarking to assuage concerns. Financial planner Harshvardhan Roongta says retail investors should venture into this territory only if they have the knowhow to spot the genuine stuff or have acquaintances in the industry who can help them to do so. “Even in case of certified diamonds that come with a report on price, investors must negotiate. This is because diamonds are sold at a discount on the price,” he says. You need to focus on the 4 Cs-Cut, Clarity, Colour and Carat weight.

THE FLIPSIDE

One of the biggest drawbacks is the lack of transparency in determining the buyback value of diamonds. “The buyback policy will vary from jeweller to jeweller. In an ideal situation, a solitaire will fetch up to 95% of the market value. This figure could come down to 8590% in case of smaller diamonds,” says Bamalwa. While established jewellers could offer a buyback value of around 85% for diamonds purchased from them, the returns could be much lower in other cases. “If you were to buy diamonds from X and sell it to Y, the discount could go up to 30-35%, depending on the buyer’s opinion of the stone,” he says.Therefore, it is best to enquire about your jeweller’s buyback policy before making the purchase even if you do not intend to sell.

Lack of transparency in pricing is more acute when it comes to smaller diamonds.”Compared to gold and financial products, transparency and liquidity in diamond pricing have a lot of catching up to do,” says Surana.Adds Roongta, “If you are absolutely keen on buying diamonds with investment as the objective, you should look at buying diamonds one carat and above. Smaller diamonds are unlikely to fetch worthwhile prices.”