The government had imposed the 80:20 rule for gold imports in August 2013, which restricted the supply of gold and resulted in the premium on gold spurting sharply. In May 2014, the government relaxed the restriction imposed earlier by allowing star trading houses to import gold.
Commenting on the same, ICICIdirect said, "However, supply still remained constrained due to the overall 80:20 rule and banks could not freely procure gold and lease them to jewellers. With the scrapping of the 80:20 rule, supply of gold to the industry will ease.
Titan currently procures 30% of its gold requirement through gold on lease and scrapping of 80:20 rule would enable it to procure higher quantum of gold through gold on lease. It would be positive from the balance sheet perspective as gold on lease is a low cost hedging mechanism that will enable Titan to expand without resorting to debt.
We remain positive on Titan and maintain our view that the company will be able to garner higher market share due to a shift from unorganized to organized players. We maintain Hold with a target price of Rs 430."
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