Stocks of retail companies rose up to 18 per cent on Thursday, amid reports that the government might allow foreign direct investment (FDI) in multi-brand retail after the Presidential elections later this month.
Delhi-based Koutons Retail, V2 Retail, promoted by Vishal Retail founder RC Agarwal and Brandhouse Retails, a unit of S Kumars Nationwide surged the most at 18.29 per cent, 9.98 per cent and 9.88 per cent, respectively. Other gainers include Shoppers Stop which rose 9.25 per cent, Trent and Pantaloon Retail which surged 7. 54 per cent and 3.04 per cent, respectively.
“FDI in multi-brand is sentimentally very positive for the retail sector. Thus we see a rally in stocks across the sector,” Rahul Kundnani, research analyst with SBICAP Securities.
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“Among the listed players, such a move is most beneficial for companies like Pantaloon, which has been scouting for a multi-national firm to partner, especially for its food business. An established and experienced player in the same business can help the company become an integrated food player,” Kundnani added.
While Pantaloon’s parent, Future Group, is reportedly in talks with Japan’s Mitsubishi Corporation and its Lawson Inc unit to get investment in back-end and sourcing operations, Mitsubishi had asked for a stake in the group’s Big Bazaar hypermarket chain. Similarly, Shoppers Stop is also looking at getting FDI in its hypermarket chain, Hypercity, which is making losses.
Trent, which has a partnership with UK’s Tesco for back-end operations, is also likely to gain if Tesco invests in its food and grocery venture, Star Bazaar, analysts said.
According to reports, the central government is in discussions with states on the issue and is likely to prepare an enabling policy framework for allowing FDI into multi-brand retail. The proposed move is likely to help the likes of US-based Walmart and UK's Tesco, which want to invest in the Indian retail sector.
Though the government cleared FDI in multi-brand retail late last year, it was forced to keep the decision in abeyance after opposition from key ally Trinmool Congress.
Meanwhile, Economic Affairs Secretary, R Gopalan, on Thursday said the government will take a decision on allowing FDI in multi-brand retail at the right tine, as it is seized of the issue. He, however, did not give any time-frame, saying the political process will take care of that.
"There is always a right time to take these kind of decisions and the government is seized of this issue... And therefore, I think, it is too early for me to say when the decision will be announced," he told reporters here, after attending the Reserve Bank's board meeting along with Governor D Subbarao.