CareEdge Ratings on Monday said that it is maintaining a negative outlook on the diamond industry and is expecting a further 17-20 per cent decline in cut and polished diamond (CPD) exports to US $11 billion in FY26. According to the rating agency, the significant share of India in diamond processing (90 per cent by volume of polished diamonds) limits the options for buyers in the near term. However, high tariffs, if fully passed on, increases the price of end consumer, significantly in the US, which is likely to impact the CPD demand adversely.
The cut and polished diamond industry has been experiencing a rough phase in the last two years amidst global headwinds, as its exports declined by 17.5 per cent year-on-year (y-o-y) to US $13.3 billion in FY25. The sector now braces itself against the steep export tariffs to the United States of America (US), which is the key diamond-consuming nation. The CPD industry operates in single-digit profit margins, and the imposition of blanket tariffs as high as 50 per cent has further exacerbated pressures across the value chain, deepening concerns around revenue, profitability, liquidity, and operational resilience.
Akhil Goyal, Director, CareEdge Ratings said, “Tariffs increasing to 50 per cent by key diamond-consuming nation is expected to exacerbate the demand sluggishness in the CPD industry. The industry continues to face competition from LGDs, and there is limited offsetting potential from alternative markets, such as India and China.”
India has emerged as the world’s second-largest diamond jewellery market, accounting for 10 per cent share in the global diamond jewellery market. The rise in demand in 2024, which is expected to continue into 2025, is supported by increasing disposable incomes, higher penetration and increasing acceptance of diamond jewellery in Tier-II and III cities, and greater financial independence among women. However, the expansion is from a relatively low base, and its momentum is expected to remain subdued in the near term due to record-high gold prices. Moreover, LGDs are gaining traction in India due to its affordability.
As a result, India’s domestic demand—while resilient—is unlikely to offset the sharp decline in exports to the US and China. In rough diamond processing, India is handling over 90 per cent of the world’s polished diamonds by volume, with its exports constituting over 46.6 per cent of the total India’s Gems and Jewellery export. India’s polished diamond industry, which earns 80 per cent of its revenue from exports, relies heavily on the US market, which accounts for over 40 per cent of the global polished diamond demand.
Although shipments may be routed through global trading hubs, India’s exports to the US directly accounted for 37 per cent of India’s exports in FY25. CareEdge Ratings notes that maintaining controlled inventory levels has become a strategic priority across the diamond value chain. At the upstream level, miners have curtailed production and offered deferrals to sight holders to avoid oversupply, while Indian diamantaires in the midstream are increasingly relying on owned sources to preserve liquidity, rationalise debtors, reduce dependence on borrowings, optimise costs, and keep inventories lean in order to safeguard profitability. On the downstream side, retailers are cautiously monitoring consumer sentiment amid rising diamond prices and the impact of US tariffs. This coordinated effort across the chain to operate with leaner inventories is viewed as critical for stabilising prices and sustaining industry viability against the backdrop of global demand uncertainty.
The rating agency highlighted that Indian CPD players are responding by curtailing production, exploring new geographies with increased focus on European and domestic market exposure. The sector is also seeking government support through incentive schemes and may consider relocating processing units to lower-tariff jurisdictions in the medium term, if the current trade environment continues. Impact on credit profiles
CareEdge Ratings rates a portfolio of entities in the Gems and Jewellery industry, out of which CPD and LGD entities collectively account for a combined income of RS 48,000 crore. The total debt rated across these entities stands at Rs 11,900 crore. Of the rated portfolio, 85 per cent entities fall in the investment grade category. Most rated entities have low debt levels, as indicated by an overall gearing ratio of 0.4x to 0.6x and healthy debt coverage metrics. The interest coverage ratio (ICR) remained comfortable at 3x to 3.5x, suggesting adequate cushion to meet interest obligations even under a stressed scenario.
“In last two years, Indian diamantaires have focused on reducing debt levels through inventory, while a built-up net worth base resulted in low leverage at below unity levels for the rated portfolio. Industry has also witnessed some consolidation with smaller players moving out due to low profitability and price erosion. Low leverage with debt majority in the form of working capital provides support to the financial risk profile of players in the near term and reduces default risk. High US tariffs are expected to impact scale and weaken profitability and credit metrics. However, the ability to maintain lean inventory levels and low leverage profile will continue to remain a key monitorable” said Ujjwal Patel, Director, CareEdge Ratings.
