Knight Frank optimistic about FDI in single brand retail

Though foreign investment in single-brand retail

has failed to gain momentum despite a hike in FDI limit to 100 per cent from 51 per cent earlier, property consultant Knight Frank says in a report, but there would be improvement in the FDI inflow over the next 6-12 months as conditions on ownership and sourcing has been eased. The share of foreign investment in single-brand retail out of the total FDI inflow into the country has declined from 0.03 per cent in December 2011 to 0.02 per cent in June 2012. “Notwithstanding the increase of FDI limit in single brand retail from 51 per cent to 100 per cent in January 2012, investments failed to pick up in the subsequent six months (January 2012-June 2012),” Knight Frank said. “This happened even as the country witnessed an overall FDI inflow of $16.74 billion (Rs 86,813 crores) during these six months. As a result, the share of FDI in single brand retail fell from 0.03 per cent in December 2011 to 0.02 per cent in June 2012,” it added.

On a positive note, the study says that though operating profits of top Indian retailers grew at an annual rate of 34 per cent in the last five years, the profitability measured by the profits after tax (PAT) had taken a severe beating due to high interest costs and real estate costs, however the participation of foreign players can address this lacuna not just by bringing in investments, but also expertise and scale of operations that equip them to contain several cost components including real estate. The study highlights that despite a slump in economic growth, the top three retailers in India--Pantaloon, Shoppers Stop and Trent-- have grown between 26 to 30 per cent in the last five years.