FDI effect: Retail stocks rallies up

The Indian stock market has reacted positively to the government’s decision of allowing 51 per

cent FDI in multi-brand retail. For one, shares of top retailers like Pantaloon Retail, Shoppers Stop jumped up. Experts say it will trigger a flurry of investments and tie-up opportunities for local players. And most importantly FDI in multi-brand retail would benefit capital-constrained retailers such as Pantaloon Retail.

Shares of Pantaloon Retail (India) jumped as much as 18.2 per cent, Shopper’s Stop rallied up 11.4 per cent, and Trent, part of the Tata Group conglomerate, rose 17.2 per cent. In comparison, Sensex was down 0.29 per cent at 11 a.m.

However, the new policy, has set out clear directions for supermarkets to source locally, it also warrants a minimum investment. Moreover, individual states would have the power to veto foreign retailers -- a caveat that could make it impossible for these companies to work in some of biggest states run by Non-Congress governments. For example, investor-favorite states like Gujarat, which is run by Bharatiya Janata Party.

The cabinet decision is expected to lead to a series of realignments in the country’s fledgling organized retail sector. For example, world’s biggest retailer Wal-Mart has indicated that it would extend its ‘back-end` partnership with the Bharti Group into front-end retailing soon, possibly by picking up a stake in Bharti Retail.

However, the decision is fraught with great political risk. The proposal was opposed by two constituents of the ruling coalition -- Trinamool Congress and the DMK. Of course, the industry has backed it especially at a time when the ruling coalition has been pilloried by indecision and policy paralysis.