MUMBAI: The government’s decision to curb silver bar imports could push exchange-traded funds (ETFs) tracking the white metal from trading at a discount to moving into a premium over spot prices, after two weeks, amid concerns of an impending supply squeeze, analysts said.
This would mark a shift from ETFs trading at a discount to net asset value (NAV), which is calculated from spot prices, to potentially trading at a premium. It implies that if spot prices rise, ETF prices could rise more, and if spot prices fall, they would fall less than the spot.
Premiums and discounts typically reflect demand conditions. When demand for ETF units is weak, they trade below NAV or MCX spot-linked silver prices. When demand strengthens, they can flip into a premium. Under normal conditions, ETF prices track NAV closely. But sharp swings in investor demand can cause temporary misalignment.
For instance, the most popular silver ETF, SilverBees, traded at ₹249.85 per unit as of Friday, about 1.3% below its then NAV of ₹253.12, reflecting subdued demand. That discount, analysts said, could quickly flip into a premium on Monday if investors rush in amid fears of a shortage of investment-grade silver following the government’s curbs.
Even silver futures and options on the MCX could be affected by the government order. “Silver prices could gap up on Monday due to a perceived supply squeeze,” said Naveen Mathur, director at Anand Rathi Share & Stock Brokers.
On Saturday, the government moved silver bars from the “free” to the “restricted” import category to rein in demand and conserve foreign exchange. Imports will now require a government licence.
Bullion dealers supplying asset management companies (AMCs) source a large part of silver bars from banks, which have sought clarity on whether they will also need licences to import on a consignment basis after the Saturday order.
“Until now banks were authorized by the Reserve Bank of India (RBI) to import gold. Now, we have sought clarity from the DGFT (Directorate General of Foreign Trade) on whether lenders will need a licence,” said a banker from a private bank’s bullion desk.
“Silver ETFs traded at an average discount of ₹7,000 per kilo to MCX spot rates over the past fortnight,” said Satish Dondapati, fund manager at Kotak Mahindra AMC. “They could move into a premium if investors believe sufficient silver may not be available for investment purposes after the government order.”
Dondapati added it was too early to estimate the extent of any potential premium.
Macro pressures
The import curbs come as the government responds to pressures on India’s current account deficit (CAD) and the rupee amid the West Asia conflict. On 13 May, it raised import duty on gold and silver to 15% from 6%, and restricted silver bar imports three days later. It also raised petrol and diesel prices by ₹3 a litre on Friday amid elevated crude oil prices.
Crude oil has risen about 50% to $109.24 a barrel since the conflict began on 28 February, while the rupee has slumped nearly 5.5% to 95.97 a dollar.
If oil prices remain persistently elevated, it could strain macroeconomic fundamentals and prompt RBI to raise interest rates amid rising inflationary expectations, according to a recent note by Kotak Institutional Equities. To contain the pressure on forex reserves amid a rising crude import bill, the government has tightened bullion import rules and raised duties.
“The impact on silver ETFs remains a wait-and-watch situation for now, as supply is currently adequate and there is limited clarity on the exact implications of the “restricted” category. The situation is still evolving, and the overall impact will depend on further clarity from the RBI and the government, along with how smoothly supply channels function in the coming months,” said Anil Ghelani, head of passive investments and products at DSP Mutual Fund.
“In such a scenario, silver ETFs could start trading at a premium to their NAV, similar to what was seen in some international ETFs when fresh unit creation became difficult due to limits on buying the underlying asset,” Ghelani added.
Since the duty hike, SilverBees has fallen 7.3% to ₹249.85, as higher prices weighed on demand.
Analysts say an expected supply shortage now could actually push up demand for ETFs.
Ankit Jain, director at DP Gold and a bullion dealer, said ETFs could also look to domestic sources such as Hindustan Zinc Ltd, which produced 627 tonnes of silver in FY26, according to its investor presentation, until clarity emerges on import permissions for banks. However, he added that ETFs cannot entirely depend on sourcing silver from Hindustan Zinc only, and it may be a temporary resort.
Silver imports rose 2.5 times year-on-year to $11.62 billion in FY26, according to commerce ministry data. Gold imports during the period rose 1.3 times to $73 billion.
Silver’s strong rally helped it outperform gold sharply: SilverBees delivered 123% returns in FY26, compared with 58% for GoldBees.
Assets under management across 18 silver ETF schemes stood at ₹95,564 crore as of Friday, according to Kotak MF’s Dondapati.