Indian Retailers Slump as Singh May Suspend FDI Decision

Indian Retailers Slump on Concern Singh to Suspend Decision
A customer shops at a Bharti Walmart wholesale store in Zirakpur, India. Photographer: Prashanth Vishwanathan/Bloomberg

Dec. 5 (Bloomberg) -- Pantaloon Retail India Ltd. led a slump in stocks of department-store chains on concern Prime Minister Manmohan Singh will suspend last month’s decision to allow foreign companies to take majority stakes in supermarkets.

Finance Minister Pranab Mukherjee today informed opposition leaders that the government will hold off implementing the policy, the Press Trust of India reported, citing people it didn’t identify. Pantaloon, the country’s largest chain by market value, dropped 12.9 percent to 186.35 rupees at close in Mumbai, the most in more than nine years. Trent Ltd. fell 3.3 percent to 962.5 rupees.

“Retail stocks are getting hammered as the government is likely to withdraw or defer the proposal,” said R.K. Gupta, the New Delhi-based managing director of Taurus Asset Management Ltd., which manages $1.1 billion. “This policy inertia may have a negative impact as foreign investors will lose confidence in the government.”

Singh’s own allies are opposed to opening up the country’s $396 billion retail market to companies including Wal-Mart Stores Inc. and Carrefour SA, saying such a move would ruin local mom-and-pop stores. Traders shut their shops across India on Dec. 1 in a daylong strike, demanding the government scrap its proposal. Foreign investment will create as many as 10 million jobs and curb inflation, Trade Minister Anand Sharma, said Nov. 25.

India’s main opposition Bharatiya Janata Party asked the government to call an all-party meeting on overseas investment in retail, spokesman Ravi Shankar Prasad told reporters in New Delhi today.

Not Sudden

Mukherjee told reporters in New Delhi today that he will make a statement in parliament, when it reconvenes on Dec. 7 after a two-day break.

Deepak Parekh, chairman of India’s largest mortgage lender Housing Development Finance Corp., and Ashok Ganguly, former chairman of Unilever’s India unit, said in a joint letter yesterday that the protests are “misconceived.”

“Foreign direct investment in retail hasn’t been a sudden decision taken by the government,” they said in a joint statement e-mailed yesterday. “On the contrary, the idea has been toyed with for over 14 years. Modernization of the retail trade is an essential part of India’s growth story.”

Parekh and Ganguly served on a government-appointed panel that last year produced a report on foreign direct investment.

Under Siege

India’s retail industry will gain $8 billion to $10 billion in investment in the next five to 10 years as competitors abroad enter and local companies try to keep pace, according to Kishore Biyani, founder and managing director of Pantaloon Retail.

Vishal Retail Ltd. slid 6 percent to 18.9 rupees.

Singh, already under siege over a failure to check inflation and allegations of graft in his administration, is trying to fend off criticism that decisions have stalled on his watch.

In an attempt to kick start an economy that expanded at the slowest pace in two years in the quarter ended Sept. 30, he approved overseas companies to own as much as 51 percent of retailers selling more than one brand, adding riders to benefit the local economy.

Firm Commitment

Moody’s Investors Service said the initiatives are “credit positive” and will “incentivize foreign investment in India.”

“Such opposition is neither unusual nor unexpected in Indian politics,” Atsi Sheth, a New York-based sovereign-risk analyst at Moody’s, said in a statement today. “It appears that the ruling coalition is firm in its commitment, which bodes well for its eventual implementation.”

Gross domestic product grew 6.9 percent last quarter, while benchmark inflation stayed above 9 percent all of this year even after 13 interest-rate increases since March 2010.

Parliament has been disrupted for four sessions. Last year’s winter sitting was the least productive in 25 years. The government’s plans to pass 33 bills, including legislation to create an anti-corruption agency with powers to prosecute most state officials, have been sidelined by the protests over foreign direct investment in retail.

To contact the reporters on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net; Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net

To contact the editors responsible for this story: Neil Denslow at ndenslow@bloomberg.net; Darren Boey at dboey@bloomberg.net