Indians visiting South Africa usually have three locations on their itinerary. There is the vast and stunning Kruger National Park, one of the world's richest biospheres, bustling with myriad flora and fauna. There are Johannesburg and Durban, where Mahatma Gandhi worked 21 years as a lawyer before returning to India to battle British colonial rule. And there is Cape Town, close to which, on Robben Island, Nelson Mandela, the heir to Gandhi's legacy of non-violence, spent 27 years in jail, before going on to become the country's first President after the abolition of apartheid.
VIDEO: How to buy diamonds
Now, a new, fourth attraction in Cape Town is slowly seducing Indians. At The Diamond Works, tourists get a close look at high-end diamond and jewellery manufacturing. This one-stop diamond 'experience' - as it is called in city guides - also sells diamonds of all shapes, sizes and colours. "Indian visitors make up 10 per cent of our international visitors," says Amy Kimmel, spokesperson for the company. On average, Indian buyers who purchase stones spend $1,000 on diamond jewellery.
If you think that is a lot, hold your breath. One South African diamond tour operator, who declined to be named, said Chinese buyers typically spend upwards of $20,000 per visit. No wonder companies such as The Diamond Works currently offer tours with guides speaking in Chinese, English, Afrikaans, French, German and Russian - but not in Hindi.
The diamond, as an asset class, is a relatively new concept for Indians, but its popularity is rising. "Diamonds, of late, have become a status symbol for many, one to graduate to from gold," says Aloke Sen, Chief Operating Officer of Takshh, a Delhi-based jewellery chain. "Buying diamonds was always a discomfort because of lack of knowledge and absence of standardised practices. But now, people are becoming brand conscious and they actually get themselves educated on how to buy diamonds."
PODCAST: The lure of diamonds
The market for polished diamonds in India is estimated at around Rs 20,000 crore, says Ashok Minawalla, former chairman, All India Gems and Jewellery Trade Federation. A 2011 report by credit ratings firm CRISIL noted that demand for diamond jewellery in India and China grew more than 35 per cent in the past two years. India alone contributed 10 per cent to the global demand.
Most people prefer diamond jewellery to loose stones. "People, when they invest in diamonds, don't leave them idle. Mostly they prefer wearing them on a ring or as ear studs," says Takshh's Sen. The predisposition towards stones set in jewellery is borne out by the numbers. Vijay Verma, a senior sales executive with Ram Jewellers in Noida's Sector 18 market, says he sells about seven to eight loose stones a month, ranging from about 0.25 carats ("25 cents" in diamond trade parlance) up to 1.5 carats. Sales for diamond jewellery touch 25 carats a month at his shop.
Still, buying loose, certified diamonds may be a wiser option than embedding them in jewellery. For one they are easy to store, transport and handle, and unless you have been very careless with them, hard to chip or tarnish. There is also a relatively liquid market for them, if you have been careful about their provenance. In many cases, the jeweller you bought them from will buy them back. Or else, if they are valuable enough, auction houses will gladly do the hard work for you. The biggest clincher is the escalation in price. The 2011 CRISIL report notes: "On the back of strong demand, prices of polished diamonds increased by more than 30 per cent over the past year," and by doing so even crossed the peak levels of pre-downturn 2008.
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It added that the escalation trend was likely to continue given strong demand from India and China, and the re-emergence of growth in the US. In comparison, gold rose roughly 18.5 per cent in value from about $1,180 an ounce in 2010 to $1,400 in 2011.
Mehul Choksi, Chairman and Managing Director of the Gitanjali Group, a leading pan-Indian jewellery chain, says price appreciation is assured because "the gap between demand and supply is steadily growing".
Of course, exactly how much your diamonds appreciate in value depends largely on the quality you buy. The highest-value stone is a 'D-Flawless' diamond (see Identifying a Good Diamond). "You seldom see it and that's why it is much more expensive," says Mark Gieljoume, a gemologist at The Diamond Works. "At auctions, people are willing to pay ridiculous prices for it." In India, a stone of this quality weighing one carat - about the size of a pea - can cost above Rs 8.5 lakh.
Given the rarity of D-Flawless stones, Gieljoume advises conservative investors to look instead for diamonds in the 'G' to 'H' colour bracket, with clarity no less than Very Slight (VS) or Slight Inclusion (SI)-1. These are the so-called "investment grade" stones.
All these trade terms, abbreviations and pricing variables, no doubt, sound complicated. It is one of the reasons diamonds are still not a popular asset class. "Gold is a far easier investment to make," says Ram Jewellers' Verma." The market rate is known. And selling a gold bar is easy because it is of a known purity." This is one reason why most Indians who buy stones on the South African diamond tours, prefer them embedded in gold.
The lack of transparent pricing is not the only problem. Virtually every single diamond sold in India is imported from South Africa, before being cut and polished in this country. That makes the rupee exchange rate a major factor in diamond pricing. "The rupee price of the better quality diamonds has gone up so we don't expect a great season," says Anoop Mehta, President of Bharat Diamond Bourse, a body set up by the Indian diamond industry to facilitate overseas trading. "It used to be Rs 48,000 a carat. That is now Rs 55,000 to Rs 57,000 a carat." Many investors are 'downtrading': instead of buying the best quality stones, they ask the jeweller for something of a lower colour or clarity to stay within their budgets. Others have put off buying altogether. "The year 2011/12 saw a dramatic change in the prices of raw diamonds. This unusual spurt gave trading a hard time across the board, be it business to business or business to consumer," says Sen.
Experts, however, add that the effects are temporary. "As diamonds are purchased with the idea of long-term appreciation, currency fluctuations should not be a major factor in determining any investment decision," says Choksi. Agrees Mehta: "Any time from now to the next six months is a good time to invest, when you see a price correction."
What has helped diamonds gain wider acceptance as an asset class is the practice of certifications. This takes the guesswork out of evaluating a diamond. Experts agree that you should insist on a certificate for any stone you buy, particularly those above 0.20 carats or "20 cents". These certificates are issued by a handful of reputed certification institutes including the Diamond High Council, the International Gemological Institute, and the European Gemological Laboratories in Belgium. There is also the Gemological Institute of America in New York and London.
No doubt, diamonds have had a tumultuous past year. Demand from Europe - the single largest market for loose stones - has been low, thanks to the ongoing crisis in the euro zone. That said, gemologists and traders believe China and other emerging economies will soon pick up the slack. "Brazil, India, China and Russia are slow right now but they will pick up again," says Choksi. "So demand should also pick up as they come back." And when the demand returns, so will the value appreciation.