ICRA projects further dip in diamond exports as lab-grown rivals gain ground

India’s cut and polished diamond (CPD) exports are set to shrink further by 7-10% in FY2026 to around $12 billion, extending the downturn after hitting a 20-year low in FY2025, according to a report by ICRA. The credit rating agency has maintained a “Negative” outlook for the sector, citing continued demand pressures in key markets like the US and China, compounded by uncertainty over potential US tariff impositions.

The report highlights that India’s CPD exports declined by 17% year-on-year in FY2025 to $13 billion, following an even steeper 28% fall in FY2024. This prolonged slump has been driven by a combination of weak global macroeconomic conditions, changing consumer preferences, and growing competition from lab-grown diamonds (LGD) and fancy-coloured diamonds (FCD).

Notably, lab-grown diamonds are rapidly capturing market share due to their lower costs and increasing consumer preference for ethically sourced products. Their share of India’s polished diamond exports has surged to 8% in FY2025 from just 1% in FY2019, the report added.

“Demand has remained tepid, particularly from the US and China, the two largest markets. The uncertainty around the imposition of US tariffs is further dampening sentiments,” ICRA said in the report.

On the pricing front, polished diamond prices fell to an all-time low in the second half of FY2025, marking a 7% year-on-year decline after a sharp 17% drop in FY2024. Prices of rough diamonds also fell by 8% in FY2025 as miners introduced price cuts to stimulate demand. However, ICRA believes that any significant correction in rough prices is unlikely in the near term, with miners expected to limit production in FY2026 to maintain price stability.

Financially, Indian diamond processors are feeling the squeeze. The operating profit margin (OPM) of ICRA’s sample set of CPD companies dropped by approximately 400 basis points to about 4% in FY2025, weighed down by negative operating leverage. The agency expects margins to erode further to around 3.6-3.7% in FY2026, given the limited ability of companies to pass on costs amid weak demand and possible tariff impacts.

“The credit profile of Indian CPD players is expected to remain subdued in FY2026 amid reduced earnings and a stretched working capital cycle. Inventory management will be critical from a credit perspective,” ICRA warned.

With volumes projected to decline further in the first half of FY2026 due to persisting demand weakness and tariff uncertainties, the Indian diamond industry faces an uphill battle to regain its shine.