India’s natural diamond polishing industry is set to experience a revenue drop of 25-27%, hitting a decade-low of $12 billion this fiscal year, according to a Crisil report released on Wednesday. The decline is driven by three reasons such as weaker demand in key markets like the US and China, a 10-15% fall in diamond prices amid oversupply, and a growing shift in consumer preference towards lab-grown diamonds (LGDs). The report highlighted that this is the third consecutive year of falling revenues, following a 29% contraction last year and a 9% drop in FY23.
The report points to a combination of sluggish demand due to oversupply, leading diamond polishers to cut back on purchasing rough diamonds and scaling down production.
In response to decline in demand, the report informed that miners have also reduced their output and eased inventory pressure to help stabilise the market. As a result, operating margins are expected to stabilise at around 4.5-4.7% by FY25.
Despite weak demand from the US—where India’s diamond exports have fallen 43% in the past two years—the industry is expected to maintain liquidity and manage credit profiles, thanks to lower working capital needs and reduced dependency on external debt.
The US, once accounting for over 40% of India’s diamond exports, now holds a reduced share of 35% in FY24. Meanwhile, China, which makes up 28% of India’s diamond exports, is witnessing rising demand for gold jewellery, as the precious metal is seen as a safer bet in uncertain economic times, the report adds.
The sharp fall in diamond prices over the past 2-3 years has further dampened demand for natural diamonds, with younger consumers increasingly favouring more affordable LGDs. These lab-grown diamonds, which are 90% cheaper than their natural counterparts, have seen their market share in the US grow from 8% to 25% over the last two years. “LGDs, which resemble natural diamonds, are 90% cheaper. Their market share has increased to about 25% by value in the US from ~8%, two years ago. The share would have been higher, if not for the sharp fall in LGD prices owing to supply outpacing demand. As a result, revenue of natural diamond exporters may continue to face serious headwinds,” says Rahul Guha, Director, CRISIL Ratings.
In anticipation of weak demand, miners and polishers are cutting inventory and costs for FY25. “As miners and polishers prepare for continued weak demand, they are focusing on reducing inventory and costs this fiscal, which will lower working capital requirements,” the report notes.
Crisil Ratings expects inventory to drop this fiscal, cutting external borrowing needs. “Inventory will reduce more than 10% on-year this fiscal leading to moderate reliance on external debt. Total outside liabilities to adjusted net worth ratio for players rated by CRISIL Ratings will remain comfortable at 0.8 time as on March 31, 2025, as against ~1 time as on March 31, 2024,” it adds.
