India Ushers in Wal-Mart, et. al. - Analyst Blog

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Amid the gloom and doom in the global economy, India has decided to open its doors to foreign direct investment ( FDI ) in the retail sector. The decision had long been hanging fire in the face of severe opposition to liberalizing the sector - a predominant preserve of small retailers and 'corner' shops.

The Associated Chambers of Commerce and Industry of India says that organized retail accounts for 5%-8% of the country's total retail market despite the presence of several domestic supermarket chains across the country.

One issue that helped tilt the scale in favor of the pronouncement is the rapidly depreciating Indian currency. The Indian rupee has lost as much as 9% vis-à-vis the dollar in the last month and close to 20% since July 2011.

The latest effort to invite FDI should shore up the sagging currency. India has also been seeing a phenomenon of food inflation, currently reigning at 9%. The percentage is one of the highest among G-20 nations and does not seem to be easing.

Commodity inflation has not necessarily been fueled by high prices. Distribution and logistical inefficiencies have been responsible no less. Monetary measures, like raising interest rates have had little impact, but for making loans expensive and slowing down credit growth. Moreover, FDI in retail should help build infrastructure that would improve warehousing and logistics as well as reduce distribution bottlenecks around the country.

India needs dollar investments as much as retailers, like Wal-Mart Stores Inc. ( WMT ), Target Corporation ( TGT ) or J C Penney Company Inc. ( JCP ) want to enter the large market (estimated to be $450 billion) that the country has to offer. A large population of 1.2 billion (2011 census) notwithstanding, India has a prosperous middle-class, which is growing. Besides, 'young India' (65% below age 35 years), which is becoming increasingly aspirational, is expanding too.

The decision will allow 100% FDI in single-brand retail and 51% FDI in multi-brand retail. The reform however, awaits the Indian Parliament's approval. The exercise will not be smooth given the resistance the move has seen in the country.

PENNEY (JC) INC ( JCP ): Free Stock Analysis Report

TARGET CORP ( TGT ): Free Stock Analysis Report

WAL-MART STORES ( WMT ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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