Retail shares erase gains on FDI pause

Companies engaged in retail business have erased almost their entire gains after the Central government formally put on hold the cabinet decision to allow up to 51% foreign direct investment (FDI) in multi-brand retail.

Pantaloon Retail, Shoppers Stop, CESC, Trent, Vishal Retail and Koutons Retail are trading lower on the second consecutive day. Most of these stocks, which had gained 10-50% in the past one-and-half months, are now trading near their November 15 levels.

Pantaloon Retail has declined 19% to Rs 189 from its recent high of Rs 234 and touched on November 25. The stock had rallied 54% from Rs 152 on November 15 after the Union cabinet allowed 51% and 100% FDI in multi-brand and single-brand retail respectively.

“This does not send out very positive signals to the investors in India and outside. The introduction of FDI in retail is one of the most significant reform measures that have been pending for years and Industry celebrated the Cabinet’s decision when it cleared the proposal", said B Muthuraman, President, Confederation of Indian Industry (CII).

A recent CII study suggested that opening up FDI in retail can increase the market size of organized retail to $260 billion by 2020. The government also stands to gain by this move and can be expected to receive an additional income of $25–30 billion by way of increased tax collection and reduction in tax slippages.