Stock markets on Wednesday saluted the government's proposal to open up the retail sector for foreign direct investment (FDI), with companies in the multi-brand retail sector jumping sharply even as the benchmark Sensex slipped down.
The firms saw shares rise between 3 and as much as 11 per cent, while the BSE Sensex slipped by a little less than 1 per cent. See graphics
Shopper’s Stop and Trent Ltd shares rose by 11.5 per cent and 7.3 per cent respectively during the day. Pantaloon Retail and Vishal Retail saw their share prices rise by 5.4 and 3.5 per cent respectively
The Commerce and Industry Ministry on Tuesday released a discussion paper and sought the views of various stakeholders. While FDI in single-brand retail firms are allowed into India, multi-brand retail is a politically sensitive issue because of concerns that FDI may hit the livelihoods of small shopkeepers.
The government has proposed safety clauses to ensure that FDI in retail helps farmers while protecting those who fear an onslaught. Experts say that if the government increases the FDI limit then some existing players may form joint ventures with overseas partners.
"Some of them are keen to form a joint venture and at some point in time they may start divesting," said Ramesh Srinivas, executive director at KPMG. "The share prices have moved in anticipation of opening up of FDI in multi brand retailing as it will open opportunities for partnerships and JVs for the existing players with overseas retailers," said Viraj Nadkarni, retail analyst at Angel Broking.
While overseas retailers may come to form joint venture into existing retail chains, a change in regulation may also lead to an improvement in the backend infrastructure for the sector that may be beneficial to all
"Indian retail will get the benefit of superior know-how, sourcing and supply chain practices from the global retailers and this paper is the most positive move in this regard," said Arvind Singhal, chairman, Technopak Advisors.
"While most of large Global players like Wal-Mart, Tesco, Carrefour, Metro etc have already set-up their operations in the country through the wholesale route, opening up of the sector will see major investments across other formats."