FDI in retail positive for Pantaloon, Shoppers Stop, Trent: JPMorgan

NEW DELHI: If the foreign direct investment (FDI) in retail reform is cleared on Friday in Rajya Sabha, it would be a sentiment-positive for existing retailers such as Pantaloon Retail, Shoppers Stop and Trent, which could be potential beneficiaries, JP Morgan said in a report named ‘India Retail’ on Wednesday.

“Prima facie, FDI in multi-brand retail would likely benefit capital-constrained retailers such as Pantaloon Retail, accelerating the pace of investment in the supply chain to meet demands,” the brokerage firm said in a report.

At 11:15 am, Pantaloon Retail India Ltd surged over 4 per cent to hit its fresh 52-week high of Rs 252 on the Bombay Stock Exchange. However, the stock pared its morning gains and was trading 1.4 per cent lower at Rs 234.45.

Shoppers Stop was trading 1.8 per cent higher at Rs 472.15. Trent was trading 0.8 per cent lower at Rs 1260.

Lok Sabha (lower house of Indian Parliament) voted in favor of FDI in Retail on Wednesday. The final vote count was 253 MPs favoring FDI versus 218 opposing.

Debate and voting on this issue will now move to Rajya Sabha (upper house of parliament) on December 6 and 7.Uncertainity on this issue would likely continue till the final voting in Rajya Sabha is over

Pantaloon Retail has been facing many challenges like soft consumer demand, geared balance sheet and negative free cash flows which have forced the company to divest some of its profitable formats.

Pantaloon’s stock price has risen sharply in recent trading sessions in anticipation of this decision. The brokerage firm maintains ‘underweight’ rating on the stock, with a target price of Rs 182.

The stock has surged over 30 per cent since November and for the year 2012, the stock is has gained over 80 per cent.

Analyst Views:

According to analysts, FDI in retail at best would be a sentiment booster to markets as it paves the way for other bills to sail through. However, the bigger concern is that nothing has changed fundamentally.

U R Bhat, MD at Dalton Capital

U R Bhat, MD at Dalton Capital Advisors in an interview with ET NOW is of the view that FDI in retail will probably sail through, but that would at best be just a sentiment booster.

"It will only be a temporary win by the government in the Lok Sabha it will help boost sentiment. But on the fundamental side, things have really not changed much," he added.

Tushar Poddar, Managing Director and Chief India Economist, Goldman Sachs

The crucial reforms that India needs to do, other than FDI in retail, are goods and services tax. We need a comprehensive reform of the tax system as administrative and compliance costs are very high.

Jagannadham Thunuguntla, SMC Capitals

There is high probability that the vote is going in favour of UPA. However, If it goes wrong, there can be a significant free fall in the market, which can be a risk.

But the probability of that happening is very less. The next big market game changing event can be the US fiscal cliff. Till that time, more or less December will be at the same level plus or minus 70 to 100 points.