Shares of three organised retailers fell by 1.71% to 5.29% at 11:36 IST on BSE after the Bharatiya Janata Party on Monday, 7 April 2014, said it will not allow foreign direct investment in multi-brand retail.
Future Retail (down 5.29%), Trent (down 1.87%) and Shoppers Stop (down 1.71%), edged lower.
The S&P BSE Sensex was down 113.80 points, or 0.51% at 22,245.70.
In its election manifesto, the Bharatiya Janata Party (BJP) said it will not allow foreign direct investment (FDI) in multi-brand retail. The manifesto, however, said the BJP will allow FDI in all wealth-and job-creating sectors.
Barring the multi-brand retail sector, FDI will be allowed in sectors wherever needed for job and asset creation, infrastructure and acquisition of niche technology and specialized expertise. BJP said it is committed to protecting the interest of small and medium retailers, SMEs and those employed by them. The FIPBs (Foreign Investment Promotion Board) functioning shall be made more efficient and investorfriendly, the BJP said.
This will mean overturning of the current terms, where state governments have the right to decide on the matter of allowing FDI in multi-brand retail sector.
In September 2012, the ruling Congress government had allowed 51% FDI in the multi-brand retail sector, but the sector failed to see any rousing response from foreign retail giants due to stringent rules set by the government.
The government on 6 June 2013 clarified that the foreign supermarkets entering India must invest in new supply chain infrastructure, such as warehouses and cold-storages, rather than buying existing assets. The government had stipulated that at least 50% of the investment made by the foreign company must be in supply chain infrastructure.
In March 2014, Trent formally announced a joint venture with British retail giant Tesco to set up a supermarket in India. Trent announced that it has approved definitive agreements with regard to investment by Tesco PLC, UK (Tesco) in Trent Hypermarket (THL), a wholly-owned subsidiary of Trent.
The agreements envisage that Tesco Overseas Investments (Tesco Overseas), a wholly-owned subsidiary of Tesco would purchase part of the equity shares currently held by Trent in THL for approximately Rs 150 crore and would separately subscribe to additional THL equity shares for an amount of approximately Rs 700 crore.
Following the conclusion of the proposed investment, Trent and Tesco Overseas will each hold a 50% stake in THL. The proposed investment by Tesco Overseas is subject to necessary approvals, the company said.
Marketmen are keenly awaiting the outcome of the upcoming Lok Sabha elections. The 36 days long voting process began today, 7 April 2015, in 6 Lok Sabha constituencies of Assam and Tripura and will finally conclude more than a month later on 12 May 2014. The results will be declared on 16 May after which India will get a new government. The term of the current Lok Sabha expires on 1 June 2014 and the new House has to be constituted by 31 May 2014.
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