The Indian Cut and Polished Diamond (CPD) industry is grappling with significant demand challenges, leading to a “Negative” outlook from ICRA, a leading credit rating agency. Intense competition from Lab-Grown Diamonds (LGDs) and the looming impact of US tariff impositions are expected to further pressure the sector.
Indian CPD Exports Set for Further Decline in FY2026
ICRA projects Indian CPD exports to decline by another 7-10% in FY2026 year-on-year, reaching approximately $12 billion. This follows a 17% contraction to $13 billion in FY2025, marking a 20-year low for exports. The downturn is primarily attributed to subdued demand in the US and China, exacerbated by uncertainties surrounding new US tariffs.
Rise of Lab-Grown Diamonds (LGDs) Intensifies Competition
The growing popularity of LGDs is a major factor impacting natural diamond demand. LGDs accounted for approximately 8% of polished diamond exports from India in FY2025, a significant jump from just 1% in FY2019. This shift is driven by consumer preference for less expensive options and the perception of LGDs being ethically sourced. While LGD exports saw a decline in value in FY2024 and FY2025 due to price corrections, their volume sales have nearly doubled, indicating strong adoption.
US Tariffs Add to Industry Woes
Effective April 9, 2025, the US imposed a reciprocal tariff of 27% on CPD imports from India. Although this was temporarily paused for 90 days with a baseline tariff of 10% applicable during this period, the uncertainty remains a major concern. Over 75% of CPD players surveyed by ICRA expect volumes to be impacted by these tariffs. Many Indian diamantaires are considering rerouting exports through trading hubs like Dubai, Belgium, and Israel to circumvent higher tariffs post the 90-day period.
Financial Performance Deteriorates, Credit Profile Subdued
The financial performance of Indian CPD companies has been negatively affected. The operating profit margin (OPM) for ICRA’s sample set of companies declined by around 400 basis points to approximately 4.0% in FY2025. ICRA expects a further decline to 3.6-3.7% in FY2026 as companies face limited ability to pass on increased costs due to tariffs amid restrained demand. The credit profile of Indian CPD players is also expected to remain subdued in FY2026, characterized by reduced earnings and stretched working capital cycles.
Rough and Polished Diamond Prices Under Pressure
Rough diamond prices saw an 8% decline in FY2025, following a 17% drop in FY2024. Miners have curtailed production, with De Beers’ total diamond production contracting by 22% in CY2024, and a further decline of approximately 13% expected in CY2025. This controlled supply is anticipated to keep rough prices at their current levels.
Polished diamond prices hit an all-time low in H2 FY2025, declining by 7% year-on-year in FY2025 after a 17% fall in FY2024. Prices are expected to remain range-bound in H1 FY2026, with any future movement dependent on an uptick in demand.
Inventory Management Crucial for Stability
Given the slowdown in sales, the inventory holding period for CPD companies has increased. ICRA’s channel checks suggest that CPD players are reluctant to procure rough diamonds amidst sluggish overseas demand and the evolving tariff situation. Effective inventory management will be critical for the industry’s credit perspective going forward.
The challenges facing the Indian CPD industry are multifaceted, stemming from shifts in consumer preferences, global macroeconomic conditions, and new trade policies. The coming fiscal year will test the resilience of Indian diamantaires as they navigate these headwinds.
