The

State Trading Corporation of India Limited

New Delhi
(April’18 - June’18)

PROJECT REPORT ON

*[ Gold market survey in NCR, India]

Submitted to: Submitted by:

Mrs. Sonal Taneja Saransh Yadav
DGM, Bullion Dept. MBA(IB) 2017-19
State Trading Corp. of India Indian Institute of Foreign Trade
saransh_kd19@iift.edu

ACKNOWLEDGEMENT

I have made efforts in this project. However, it would not have been
possible without the kind support and help of many individuals at STC.
I would like to extend my sincere thanks to all of them.

I am highly indebted to Mrs. Sonal Taneja, Deputy General Manager,

Bullion division of the State Trading Corp. of India, for her guidance and
constant supervision as well as for providing necessary information
regarding the project & also for her support in completing the project.

I would like to express my gratitude towards the faculty of Indian

Institute of Foreign Trade & my parents for their kind co-operation and
encouragement which help me in completion of this project.

I would like to express my special gratitude to industry persons and

jewellers of the National Capital Region for giving me such attention and
time.

My thanks and appreciations also go to my colleagues in developing the

project and people who have willingly helped me out with their abilities.

Saransh Yadav
MBA (International Business)
Indian Institute of Foreign Trade
New Delhi

 INDEX
Page no.

1. Introduction 4
2. Objective 6
3. Gold demand 7
4. Market analysis 11
5. Research methodology 16
6. Competitor analysis 18
7. Recommendations 20
8. Conclusion 22
9. Appendix - I 23
10. Appendix – II 25

1. INTRODUCTION
Gold is a precious metal. It has emotional, cultural and financial value and
different people across the globe buy gold for different reasons, often
influenced by a range of national socio-cultural factors, local market
conditions and wider macro-economic drivers. Demand for gold in India
is interwoven with culture, tradition, the desire for beauty and the desire
for financial protection. Over the past five years, annual demand has
averaged 895 tonnes, equivalent to 26 per cent of total physical demand
worldwide. For many years the most avid purchaser of gold in the world,
India remains one of the leading markets for gold globally today.

However, as India has little domestic supply of gold, demand is primarily

satisfied by imports. The cost of these imports is partially responsible for
today’s current account deficit (CAD). The strong gold price performance
was a positive for investors and producers, and was symptomatic of a
more profound shift in sentiment: a growing recognition of gold’s role as
a wealth preservation and risk mitigation tool. With the implementation
of GST, a paradigm shift is expected in the way of doing business in India.
A greater consolidation will be seen in the markets and the role of
organised sector will be enhanced. This will particularly be good for gold
business of STC. The gems and jewellery sector plays an important role in
the Indian economy, contributing around 6-7% of the country’s GDP.

Company description: The State Trading Corporation of India Ltd. (STC)

is a premier International trading company of the Government of India
engaged primarily in exports, and imports operations. It was set up in
1956 primarily with a view to undertake trade with East European
Countries and to supplement the efforts of private trade and industry in

developing exports from the country. The Corporation is registered as an
autonomous company under the Companies Act, 1956 and functions
under the administrative control of the Ministry of Commerce & Industry,
Govt. of India. STC has played a vital role in India’s economy. It has
helped the country to earn scarce foreign exchange by undertaking
development of exports when called upon by the Government to do so.
The total foreign exchange earnings of the company by way of exports,
trade margins, etc. during 2016-16 amounted to Rs. 742.90 crores

Form of Ownership: The State Trading Corporation of India Ltd. (STC) is

a premier International trading company of the Government of India. It
has paid up equity of Rs. 60 crores of which 90% is held by the govt. of
India. The company also has one wholly owned unlisted subsidiary
company, STCL Limited which is also a nominated agency to import gold
by the government of India. The company is also listed on the National
Stock Exchange & Bombay Stock Exchange. And the share prices on both
the exchanges have moved in the past year in near resemblance with the
movement of the two indices with Rs.874 crores market capitalization.

The Corporation has played a key role in the Indian economy. In the pre-
liberalisation era, it acted as an arm of the Government of India not only
to regulate foreign trade but also for intervention in the domestic market.
The Corporation handled canalized exports and imports of large number
of items varying from chemicals and drugs to bulk commodities such as
edible oils, cement, sugar, newsprint, wheat, urea, etc. thereby ensuring
timely availability and equitable distribution of mass consumption items
as well as essential raw materials for the industry. Canalisation also
helped the nation to benefit from economies of scale and keeping a close

watch on the scarce foreign exchange.

STC is one of the agencies nominated by the Govt. of India to import gold,
silver and other precious metal into the country. STC imports Gold in 100
gms and 1 Kg bar from LBMA members as well as silver for traders/
jewellery manufacturers.

Aiming to diversify the range of bullion activities, STC is also having its
presence into the field of supply of gold/silver medallions in order to
meet the customized requirement for Corporate/Institutional orders. STC
has a well established network of bullion associates across all the bullion
active centres and ensures supply of hallmarked gold/silver medallions.
Various PSU’s/Central & State Government Departments are inviting
tenders at regular intervals to source their customized requirements of
gold/silver medallions mostly for the purpose of rewarding/gifting their
employees on special/auspicious occasions.

2. OBJECTIVE:

To conduct a market survey in the National Capital Region of India to

study about the gold import patterns of large jewellers in the region.
Primary data that will be collected will also serve STC to understand the
potential customers in a broad manner. The survey report also aims to
provide in-depth analysis of gold market in the country.

3.GOLD DEMAND

India is second largest importer of gold in the world. According to the

World Gold Council (WGC), gold demand in India is likely to remain
below its 10-year average for a third year in 2018 as higher taxes and new
transparency rules on purchases may cap last year’s rebound in buying.

The demand for gold in India can be categorized into the following types:

Jewellery demand

Gold jewellery represents the largest source of annual demand for gold
per sector. This has declined over recent decades, but it still accounts for
around 50% of total demand. India and China are by far the largest
markets, in volume terms, together accounting for over 50% of
current global gold demand. The Asian and Middle Eastern markets are
dominated by demand for purer, high-carat gold. Gold has been an

integral part of the Indian civilisation throughout its recorded history.
Gold has been consumed by Indians for centuries for both their aesthetic
as well as investment value.

Investment demand

Gold has unique properties as an asset class. Modest allocations to

gold can be proven to protect and enhance the performance of an
investment portfolio. Even so, globally, gold still only makes up less
than one per cent of investment portfolios. However, this is changing
and investors of all sorts are coming to accept gold as a reliable, tangible
long-term store of value that has moved independently of other assets.
The annual volume of gold bought by investors has increased by at least
235% over the last three decades. Gold can be used in portfolios to
protect purchasing power, reduce volatility and minimise losses during
periods of market shock. Gold is at an interesting juncture at present.
The opportunity cost of holding Gold is high as equities continue to
reach fresh records, the global economy is recovering and there are few
threats to the financial system other than the large amount of debt that

has built up since the financial crisis. But, with global growth
recovering, debt may be something that can be lived with, although it
will no doubt come back to haunt the market at some stage. As such,
there do not seem to be many pressing financial security needs for
investors to be seeking safe-havens – at least not yet.

Central bank demand

The past decade has seen a fundamental shift in central banks’ behaviour
with respect to gold, prompted by reappraisal of its role and relevance
after the 2008 financial crisis. Emerging market central banks have
increased their official gold purchasing, while European banks have
ceased selling, and the sector now represents a significant source of
annual demand for gold. Central Banks sold 7,853 tonnes of gold between
1987 and 2009; between 2010 and 2016 they bought 3,297 tonnes.

Technology

Gold has long been central to innovations in electronics. Today the

unique properties of gold and the advent of 'nanotechnology' are driving
new uses in medicine, engineering and environmental management.

Gold can be used to build highly-targeted methods for delivering drugs

into the human body, to create conducting plastics and specialised
pigments, or advanced catalysts that can purify water or air. It has also
been used in dentistry for centuries. Although most technological

applications use low volumes of gold, their impacts are very diverse and
wide-reaching.

India imported 24 billion dollars’ worth of gold in 2016 with Switzerland

as the leading nation amongst exporters with 13 billion dollars and
South Africa, UAE and USA being other large exporters to India.

Influencing factors

Like most commodities, the price of gold is driven by supply and

demand, including speculative demand. However, unlike most other
commodities, saving and disposal play larger roles in affecting its price
than its consumption. Most of the gold ever mined still exists in accessible
form, such as bullion and mass-produced jewelry, with little value over
its fine weight — so it is nearly as liquid as bullion, and can come back
onto the gold market. At the end of 2006, it was estimated that all the gold
ever mined totalled 158,000 tonnes (156,000 long tons; 174,000 short tons).

Given the huge quantity of gold stored above ground compared to the
annual production, the price of gold is mainly affected by changes in
sentiment, which affects market supply and demand equally, rather than
on changes in annual production.

4. MARKET ANALYSIS

The bullion division of STC serves the big gold importers in the country
through its various centres across the country. The import of gold is
done in accordance with the rules and procedures mentioned in the
Foreign Trade Policy of India 2015-20. The imports are also guided by
time to time circulars issued by the Reserve Bank of India. The Indian
gems and jewellery industry is one of the worlds most competitive
markets due to the low cost of production and highly skilled labour.

Hedging: The company does not take exposure in volatile commodities.

It makes gold purchases only against confirmed orders backed by
appropriate margin money. Guidelines for the company are in place

requiring forward foreign exchange cover to be taken in respect of

transactions involving STC funds.

Being on this position also shows that India has a great opportunity to
move up and be present across all the points in the value addition chain.
Doing so can generate the next wave of growth and profitability as India
consolidates its position in low-value gem processing and captures a
greater share of high-value gem processing and Jewellery making. This
move is also important as other low cost countries like China are striving
hard to wrest share from India in its current areas of strength.

Threats: Uncertainty surrounding global projections has increased and

risks continue to be tilted to the downside. This reflects the possibility of
prolonged period of heightened policy uncertainty taking electoral
outcomes of the next year’s general elections into consideration. In few
past years high volatility has been observed in the prices of bullion as well
as Indian rupee-US dollar exchange rates. Change in government policies
like providing licences even to the private firms to import gold when the
balance of trade improves or current account deficit decreases.

The bullion import turnover of STC has decreased from Rs. 4,711 crores
to Rs. 4,272 crores in 2016-17 financial year. But, if we look at the share of
bullion division in net imports of STC it has increased from 53.93% to
almost 67%. The basic precious metals like gold and silver contribute
55.11% of the total turnover of STC.

Oil and Gold prices have tended to be positively correlated, although oil
prices fell more severely in the financial crisis, while Gold initially sold
off but then benefited from safe-haven buying. Both commodities have
generally been rallying since the start of 2016, although both have
had setbacks along the way. Since the lows in 2015/2016, to the peaks,

Gold prices have climbed 30 percent and oil prices have climbed 129
percent. From the lows to the price levels in late November 2017, Gold
prices are up 23 percent and oil prices are up 118 percent.

A greater insight is obtained when we take a deeper look into the bullion
department of STC. Though the bullion purchases of stock in trade is
reduced but the purchase of gold has increased in 2016-17 fiscal thus
reflecting a strong market sentiment for gold.

Silver purchases have shown sharp decrease this fiscal.

India has seen a strong import in gold in past few years. According to the
World Gold Council (WGC), gold demand in India is likely to remain
below its 10-year average for a third year in 2018 as higher taxes and new
transparency rules on purchases may cap last year’s rebound in buying.

The GFMS estimated India’s gold imports in the December quarter at 140
tonnes, taking total imports to 780 tonnes by the end of the year.
“Hallmarking rules will be the next important development to look out
for, specifically the timeline and implementation plan. This will cause a
rush to convert jewellery to the standardised 22 carats, 18 carats and 14
carats purity. This will create additional demand and see many small
jewellers exit the trade.

If we go by the technical analysis, then the total gold imports in 2018-19

fiscal will be at 735.81 tonnes approximately. The demand for gold may
also be lower as jewellers had already kept stocked gold before the GST
was rolled out.

Gold prices have generally consolidated in 2017 after their initial rebound
in 2016, which followed a four-year bear market. Gold prices are 21
percent above the 2015 low and 33 percent below the 2011 high. Global
economic growth has become more concerted in 2017 and that bodes well
for fabrication demand for Gold - greater prosperity is also expected to
breathe some life back into the depressed jewellery market, and that alone
could have a significant impact on demand.

According to the World Gold Council, annual mine production of gold

over the last few years has been close to 2,500 tonnes. About 2,000 tonnes
goes into jewelry or industrial/dental production, and around 500 tonnes
goes to retail investors and exchange-traded gold funds.

5. RESEARCH METHODOLOGY:

A primary market survey was conducted in the National Capital Region

of India on large jewellers who import gold form the nominated agencies
in India for the purpose of making jewellery for sale in the domestic
market as well as for export purposes. 5 areas were covered i.e. Bank
Street in Karol Bagh, Gold Souk mall in Gurugram, Jewellers near Preet
vihar metro station, south extension near AIIMS and Greater Kailash
market. The survey broadly covered businesses which were into trading
and imported gold for the purpose of selling to domestic smaller
jewellers.

But the research had limited access to the respondents as either the
owners remain at the head offices located in other cities of the country or
the managers present were unwilling to give the information because of
being uninitiated of their authority or some other mental reservations
thus, they had a fear of consequences of participation. In few cases, the
managers who were participants in the survey didn’t have adequate
knowledge regarding the business nor the adequate motivation to
cooperate. Thus, the amount of disclosure was not adequate in majority
of cases. But sufficient data was collected for drawing a competitor
analysis.

Likert scale was used to gauge customer sentiments on various

parameters. Also rating questions were asked to find out the customer
inclinations for future. The elements were selected individually and
directly from all the major jewellery businesses in the NCR region. The
average survey lasted 6-7 minutes. The survey was designed to seek

structured responses from the target group. But all these obstacles were
already expected in a survey involving big gold jewellers as they are
naturally slightly reluctant to share their business information. The major
problem in the survey was of “don’t know” responses of the store
managers. All code of ethics was followed during this research and the
right of companies to dissociate themselves from the research project was
respected.

Managers and owners at 18 firms revealed their sources of gold. 9 of those

source their gold from more than one source. Metals and Minerals
Trading Corp.(MMTC) was the most common government nominated
agency. Also, many gold importers preferred MMTC-PAMP, which is a
joint venture between MMTC and Switzerland based PAMP SA firm.

More than 70% of the firms agreed that they also involve local traders to
source their gold

6. COMPETITOR ANALYSIS:

There are various other nominated agencies like STC which are import
canalized goods into the country like Metals and Minerals Trading
Corporation, Gems and Jewellery export promotion council, etc.

Apart from the nominated agencies, the Reserve Bank of India has
nominated 16 banks to import gold and silver in the 2018-19 fiscal.

The State Bank of India leads the pack of state-run lenders, while there
are also international lenders like the Industrial and Commercial Bank of
China and Bank of Nova Scotia.

MMTC-PAMP India- which is a joint venture between PAMP SA
Switzerland and MMTC Ltd, a government of India undertaking is the
biggest competitor of STC. MMTC and MMTC-PAMP India has
dominated the gold imports in the country. It is India’s first and only
LBMA Good delivery refinery accredited for gold and silver. MMTC
enjoys the position of market leader in the Indian bullion trade. There are
also a lot of local traders into play even amongst the organised sector of
jewellers because during some seasons gold demand is not that high as to
source gold from a nominated agency. Private banks are preferred by
most of the jewellers for similar reasons even though the
premium/commission they charge is significantly higher than that of
STC. Also, Tata brand “Tanishq” has a licence to import gold from foreign
countries on their own.

7. RECOMMENDATIONS:

Purity verification centres can be set up across major cities in the country,
where customers can be encouraged to witness authentic verification of
gold content and its purity in the item tendered. A nation-wide network
of such centres can be implemented in a phased manner, thus valuing and
empowering its customers across India.

An annual supplier meet can be organized in order to develop strong and

long lasting bond with the suppliers. Also, customer-dealer meets can be
organised once in each region in a year to ensure 100% customer
satisfaction.

STC has been involved in many legal matters as the creditors are
defaulting more than rarely on payments, thus the company can employ
investment analysts who will build and maintain risk management and
risk budgeting models. Also, research and maintenance of market index
data is of prime importance to beat the competition. Correlations between
volatilities and returns should also be analysed by the analyst.

STC is very much regulated as compared to the large private banks those
import gold as a result of which STC is unable to cater to the small
demands of many customers even though the banks charge much higher
premium to the customers. If at all possible, STC could lower its minimum
gold quantity to import.

3 key strategic priorities to increase bullion customer base
of STC

Horizontality Advance horizont ality by harnessing the

government’s support and collective capabilit ies
of banks and foreign gold refiner ies for
maximum benefit of associates/clients.

Increase market share of STC by capt uring new

clients as there is a significant number of big

New markets Jewellery firms which are captured by MMTC,

which is another government nominated agency.
No two clients are alike, so the task of client
management is both simple & complex, thus STC
would need to understand each client’s need in
depth and detail and try to cater to their demands.

New media
Increase brand awareness of STC amongst Jewelers
through newspapers, social med ia and e-commerce
websites, etc.
8. CONCLUSION

STC’s strength is that the market trust in its polices and procedures. Being
a government agency has its advantages as well as some weaknesses. Its
weakness being more regulated than banks and thus is loses its flexibility
as compared to its major competitors.

Many jewellers favour banks despite the banks charge much more
commission/premium than STC on quantity of imports because there is
a lower limit of gold imports that STC has to abide by, whereas, in most
cases the demand for gold by the jewellers is lesser than the lower limit of
STC.

Import of gold is expected to increase in the next year, thus offers great
opportunity for an institution like STC to increase its revenue by both,
increased quantity of gold for already existing customers and also by
increasing its customer base by attracting new associates.

9. APPENDIX – I (Market survey questionnaire)

GOLD IMPORTS SURVEY

State Trading Corporation of India Ltd.
Jawahar Vyapar Bhawan, Tolstoy Marg
New Delhi- 110001, INDIA

1. Name of the firm Name of the official:

Designation:

2. Location of the firm

3. What is the nature of your gold business?

Exporter
Domestic Jewellery
Trader

Other

4. What is the average requirement (per annum) of gold of your firm?

5. Where do you source your gold from?

State Trading Corporation of India Ltd (STC)

Metals & Minerals Trading Corp. Ltd (MMTC)
Projects & Equipment Corp. of India Ltd. (PEC)
Handicrafts & Handloom Export Corp. (HHEC)
MSTC Limited
Diamond India Limited
Nominated bank by the RBI
Domestic gold refineries
Local Traders
Others Please specify:

6. Reasons, if any, for not sourcing gold through a nominated agency.

7. Under which scheme do you source your gold?

8. What are the premium/commission charges paid by your firm?

9. Do you find the premium/commission reasonable?

YES
NO

 10. Please rate the following parameters according to your preference by which you decide your supplier(s)

/10 Trading margin

/10 Ease of doing business
/10 Personnel availability
/10 Service quality

11. Kindly rate your agencies on the following parameters ( rate out of 10 )

Agency Trading Ease of Personnel Quality of Overall

name margin business availability service satisfaction

A.
B.
C.
D.
E.

12. What kind of issues do you face while dealing with your agency?

13. What extra benefits/features/support do you look for while importing gold through an agency?

14. Do you look forward to change your current nominated agency in future?

Yes

No
Maybe

15. Which vault/security agency you prefer for vaulting services?

16. Did you source gold from any other nominated agency in the past? (Please specify, if yes)

17. What were the issues/reasons that made you change your agency?

18. Kindly rate your previous agency

1 2 3 4 5 6 7 8

Unsatisfactory Satisfactory

10. APPENDIX-II: (Gold import survey data – NCR)