Shares of Titan fell 6 percent in intra-day deals on Friday after the government increased import duty on gold to 12.5 percent from 7.5 percent. According to the press release issued by the government, the move is to dampen the demand for the precious metal in the country amid rising inflation.
India is the second-biggest consumer of gold in the world and most of the gold in the country is imported which has led to a massive increase in India's trade deficit pushing the rupee above 79/dollar, its record low.
On the back of this development, Titan fell as much as 5.9 percent to its day's low of ₹1,827 in intraday deals on BSE. However, the stock ended flat, up 0.2 percent at ₹1,926 as against a 0.2 percent decline in BSE Sensex.
India's trade deficit in May surged to its record-high $24.29 billion, while India imported gold worth $6.03 billion in the month, a nine-fold rise from the previous year.
This move is also a reversal of the previous year's Union Budget proposal where Finance Minister Nirmala Sitharaman announced a reduction in customs duty on gold to 7.5 percent from 12.5 percent.
The yellow metal has been trading in the range in the past one month despite the massive correction in the markets across the world. Historically, gold prices tend to gain during phases of high inflation, however, due to an aggressive rise in interest rate which in turn is reversing the excess liquidity in the system, the rise in the yellow metal has been nominal.
"The stubborn and sticky inflation has forced central banks across the globe to hike rates aggressively and unwind the easy monetary policy to reverse the excess liquidity in the system. The hike in the US interest rates by the FOMC has been much faster and higher than expected. The Fed has turned more aggressive based on persistently high inflation numbers. This has rendered strength to the US Dollar, and the currency yields are rising too with the hike in policy rates," domestic brokerage house Emkay pointed out.
It added that the move by central banks underlines the commitment to contain inflation, and therefore, gold may not be that well sought after as inflation may edge lower over the coming months. At the same time a strong dollar pulls down gold prices as the unit in which the buyer or seller is dealing is appreciating, the brokerage said.
Going ahead, it expects Gold to trade in a narrow range until clarity in the US on interest and other monetary policy measures. This is the prevailing situation, and hence the very narrow ranges in which the price is moving. The support levels for gold are at $1760 and $1730 levels, and the upside may be capped at $1930/40 levels in the near term, it further stated.