Retail shrs hit a high as FDI clears Lok Sabha test

Moneycontrol Bureau

Investors rushed to buy retail stocks on Thursday after the government won a vote in the Lok Sabha to allow foreign direct investment in multi-brand retail sending companies like Pantaloon Retail, Shoppers Stop and Trent to a 52-week high on opening.   100 percent FDI in single brand retail is allowed in India. Pavers England and Ikea recently got permission to open stores in India. Others like Marks & Spencer and Zara are already present here through tie-ups with local firms. In September, the UPA government moved to allow 51 percent FDI in multi-brand retail. But it put the onus on the states. A state government can decide if it wants foreign retailers like Wal-Mart and Carrefour to open retail stores in its backyard. The issue raised a political storm, and its then ally Trinamool Congress led by Mamata Banerjee pulled the plug. However, with the numbers in Lok Sabha in its favour on Wednesday, Congress and the UPA can breathe easy. There is still a debate and vote looming in Rajya Sabha, where the UPA will face a tougher test. But having won in the lower house of the parliament, there is a hope that with a major hurdle cleared, foreign companies' plans to set up retail stores here will now gather steam. But hey, don't expect to see the likes of Wal-Mart and Tesco in your city anytime soon. Since the decision was announced in September, only Wal-Mart has said it could be in a position to open stores in India in 18-24 months. Most other supermarket giants have taken a wait and watch approach. Afterall, there are still a lot of uncertainties as far as their entry goes. Firstly, individual states can decide if they want FDI in multi-brand retail or not.  While states ruled by Congress and its allies and Jammu & Kashmir have welcomed the move, most states ruled by BJP and its NDA partners, as well as West Bengal run by Trinamool Congress, have said they won't allow foreign retailers in their state. So even if a foreign retailer comes to India, he will be able to open stores only in select cities. Also, there is uncertainty in a situation if it gets approval in a particular state, but then the government changes and the new government is not in favour. In any case, there will a long process for a company to get permission to set shop here. It will need to get approval from several state government agencies, from individual states, which will then also need the go ahead from the union government. There is also the mandatory clause that a foreign multi-brand retailer will have to invest USD 100 million, with at least half of it in back-end infrastructure, in first three years of operation. Not many retailers are happy with that, either. The retailer also has to source 30 percent from small and medium enterprises as per the set rules. Several foreign companies are also present in India through tie-ups with Indian firms. For instance, Britain's Tesco has a deal with Tata group firm Trent, to help expand the later's Star Bazaar hypermarket operations. Bharti and Wal-Mart have a equal partnership in wholesale (cash-and-carry) business, where 100 percent FDI is permitted and have evinced interest to form a retail JV. Among other foreign retailers, Carrefour of France and Germany's Metro have wholesale operations here. Will these companies start full fledged retail operations here, one will have to wait and watch. At 9:40 hrs, Pantaloon Retail, Shoppers Stop, Brandhouse Retails and Provogue were up 2-3 percent.