Mumbai: Driving by the booming millennials, the country is on course to become the third largest diamond market by 2020 overtaking Europe and Japan, says a report.

Currently, the largest markets for this metal is China, the US, Europe and Japan, and India, and the first two are set to remain so, says a Bain & Company report.

“We believe India has a potential to be the fastest- growing diamond jewelry market in coming years on the strength of increasing urbanisation, middle-class expansion and engagement ring penetration and overtake Europe and Japan to become the third largest market by 2020,” says the report.

Continuing fall in the rupee, however, may negatively affect market growth rates in dollar terms over the short to medium term, the report warned. The projection is based on the rough-diamond supply from existing mines, and anticipated production at every expected new mine.

The report sees global supply of rough diamonds to decline by an average of 1-2 per cent annually till 2030 due to the ageing and depletion of existing mines. New supply from the Luaxe mines in Angola will be partly offset by likely delays in the operations at the Bunder mines in India and the shutting down of the Snap Lake mines in Canada, it added.

Basing its projections largely on a new generation of consumers called the millennials, the report says they represent a compelling opportunity for the industry. The population of the millennials, have a strong preference for diamond jewelry, in China, India and the US totalled 900 million in 2015 and a combined gross income of USD 8 trillion. While the Chinese and Indian millennials rank jewelry as their top gifting category, non-millennials rank it second, notes the report.

Indian millennials cite their perception of a more favourable ratio of price to quality.

On supply side, it sees for the next three years, supply of rough diamonds maintaining a tight balance with demand. “We expect demand for rough diamonds to recover from the recent downturn and return to a long-term growth trajectory of about 2-5 per cent per year on average, relying on strong fundamentals in the US and the continued growth of the middle class in China and India,” says the report.

It also said currently, sluggish demand in China offset the positive trends in the US while the currency depreciation drove revenue declines in Europe, India and Japan despite sales growth in local currency terms.

In India, the anti-tax evasion initiatives can offset positive macroeconomic trends, while further rupee devaluation is likely to offset demand growth in local currency terms.