Retail rally fizzles out amid political opposition for FDI

Pantaloon Ret BSE | NSE 29/05/12 Are Mutual Funds betting on Pantaloon Ret? Other Stocks in this news Shoppers Stop | CESC | Trent |

Moneycontrol Bureau

Retail stocks continued to slide on Tuesday amid growing opposition from political parties, some of them within the UPA government, against foreign direct investment in multi-brand retail. Most stocks in the retail sector fell 3-5% on Tuesday after an all-party meet held to try and iron out the differences failed to make any headway.
 
The government's approval to 51% foreign direct investment last week had provided a shot in the arm for retail stocks, most hitting their 52-week high on Friday. However, the rally's life was cut short as opposition to the said FDI gained momentum. Pantaloon Retail , Shoppers Stop , CESC , which owns Spencer's Retail and Tata-group company Trent   fell 7-16% from Friday's close.

Company	Stock closing price on Tues. [Rs]	Change from Friday's close [%]
Pantaloon Retail	196.70	-15.9
Shoppers Stop	356.05	-10.0
Trent	985.80	-6.8
Koutons Retail	20.45	-14.6
Vishal Retail	20.05	-11.7
CESC	250.45	-8.8
Provogue	25.15	-7.2

 

 

 

 

 

 

 

 

 

 

 

The government says FDI in multi-brand retail, which will allow foreign retailers like WalMart, Carrefour and Tesco to set shops, will create thousands of jobs, it will help in strengthening supply chains and bringing down inflation. The retailers are for it, as they see it as an easy way to sell some of their stake and get money to pare mounting debts. Pantaloon, for instance, has a debt of over Rs 4,000 crore.

But the Opposition is firmly against such move. While the government has not given any assurances, the Opposition has maintained it will not allow Parliament to function until the decision is rolled back.

Two UPA constituents - Trinamool Congress and DMK - too have demanded a rollback of the government's decision. There is resistance even within the Congress; its Kerala unit has raised red flag against FDI in multi-brand.

There is a growing feeling that things are going back to square one. Even if the government stays firm on its decision and allows 51% FDI in multi-brand retail, the final decision of allowing companies to open stores will lie with the respective state governments, and many of them are not in favour.

The parties and alliances ruling in 11 major states with 28 cities have strongly opposed FDI in retail. This amounts to half of the 53 cities eligible for FDI in multi-brand retail.

Amid all this confusion, foreign retailers are likely to watch the political drama unfold and wait for more clarity. Analysts too say things are unlikely to change overnight. Even if foreign brands lands in India, the billions of dollars that the government says will flow into India is likely to happen over the next several years.

Crisil estimates FDI inflows of USD 2.5-3.0 billion over next five years, modest compared with USD 160 billion FDI inflows in India over past five years.

For now, the focus is likely to shift back to more pressing issues, which will weigh on the stocks. Retailers are seeing sales slow down amid high inflation and uncertain macro-economic environment. That will be a near-term challenge, warn analysts. Also retailers will increasingly have to do a balancing act of seeking more funds for continuing expansion, even as they try to reduce their existing debt burden.  

Nachiket Kelkar
nachiket.kelkar@network18online.com