The problem faced by the industry is not only slower demand but also rupee devaluation, which affects imports of rough. In the last one year, the rupee has been devalued by 20% which is seriously affecting manufacturers’ profit margins. Companies who have imported rough diamonds on credit for 90 or 120 days, keeping payment terms open, have burned their fingers as there was a sudden depreciation in the rupee which has hit profits. Companies who had dollar accounts were better insulated against the rupee volatility and had some relief, but the rest have suffered badly. The stockpiling of inventory coupled with the rupee devaluation has a severe liquidity crunch in the market. Since the recession of 2008, banks have become very cautious when lending money to the diamond industry as a whole.
Apart from this due to the drastic movement in currency markets, future and option premium for the Currency is also at pick. So if trader, being safe wants to hedge its business through forwards and options, he has to pay huge premiums which ultimately affects its profitability. For safe traders or less risk takers, market seems to be very tough these days. For risk takers, neither fluctuations nor losses matters..!!