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It looks like India is inching closer to easing its policy on foreign direct investment (FDI) – a shift that would be positive for WMT and other global retailers. But, we’ve been down this road before.

It’s been nearly two-years since the Department of Industrial Policy and Promotion put forth a proposal regarding FDI in multi-brand retail in July 2010. Then last November, a proposal to allow up to 51% FDI in multi-brand retail was approved only to be subsequently shelved following political upheaval.

While the implications for India and global retailers alike remain largely unchanged from when we wrote on the issue last fall, two key factors at play increase the likelihood of government action: 1) the Presidential election takes place July 19th, and 2) an additional ~8% devaluation in the rupee since FDI reform was parked at year-end. While jockeying headed into the election could produce a multitude of outcomes, the reality is that the two are closely intertwined as the government is looking to encourage foreign flows to India in order to buoy the currency.

As for what this means for retail, here’s some context from our November note:

The Indian government has approved a policy to allow 51% FDI in multi-brand retail and 100% FDI in mono-brand retail in an effort to help buoy the currency. This effectively opens the door to one of Retail’s most attractive international markets to (aspiring) global retailers. (Hedgeye note: the policy for 100% FDI in mono-brand retail has been rolled out, it’s the multi-brand policy that was not)

Previously, multi-brand retailing was forbidden in India and the country restricted mono-branded retailers to 51% ownership requiring a local partner. The new shift in policy no longer blocks the likes of Wal-Mart, Carrefour, or Tesco from entering the market and enables mono-brand retailers to pursue more aggressive self-funded expansion plans (i.e. Nike, VFC, etc…).

As a point of reference, the Indian retail sector is currently worth approximately $450-$500Bn in USD, but has been growing at a HSD-LDD digit rate over the last few years One recent study called for the market to double by 2015.

Sounds like a lot, but keep in mind that India’s per capita GDP stands at US$1,410, while China currently sits at about $4,428. So perhaps not a stretch. No, India is not China, and vice/versa. There are distinct geographical, cultural and ideological differences that make them both distinct.

Also, keep in mind that with just ~6% of India’s retail distribution organized (i.e. not via stalls, etc.), it will take years for investment from global players – especially multi-brand retailers – to establish adequate supply chains to make  meaningful progress so we need to be mindful of near-term expectations.

But 10-years ago, no one cared about China. It was not every other word out of a CEO’s mouth because the core markets are too mature to grow. The companies that are successful there today are the ones who invested when no one cared.

While India accounts for roughly 1% of the global luxury market compared to China at closer to 10%, the opportunity for global retailers is clearly evident. Several companies like VFC, SHOO, and others have already established a foothold with local partners. For a company like VFC, which has clearly outlined its plan to grow sales in India from ~$50mm in 2010 to over $200mm by 2015 accounting for a mere 20bps of growth annually, this announcement could accelerate efforts in the region. Either way, we expect India to quickly become part of the expansion dialog among retailers – particularly in light of slowing growth across much of Europe and China.

Casey Flavin


India FDI Inching Closer to Reality - India GDP