The recommendation of the Committee of Secretaries (CoS) to allow a 51% FDI in multi-brand retail has triggered some action in shares of leading retailers despite volatile market conditions. Shares of Pantaloon Retail and Shoppers Stop outperformed the broader market, as analysts feel the opening up of the Indian retail sector will boost prospects of the companies which will have a major access to foreign investment through the FDI route.
Since the CoS recommended FDI in retail, Pantaloon Retail gained 7% to close at 341.8 on the BSE on Monday. Shoppers Stop rose to a new high of 504 on July 25, but could not sustain gains amid choppy market last week. The stock was up 2.9% at 405.5 on Monday. "The big positive is that raising capital to tide over liquidity crunch will become easier for existing players," said Rajesh Cheruvu, head-strategy, RBS Private Banking. This could lead to rerating in stocks like Pantaloon Retail, he said.
According to analysts, historically, multinational retailers have paid a higher price to invest in developing retail markets. They also feel the tie-ups will largely happen in the hypermarkets space as departmental stores generally don't opt for cross-border tie-ups.
Analysts say the CoS recommendation will drive institutional buying in listed retailers in which there has been no significant increase in domestic and FII holdings in the last three quarters. "We are excited by the implications this clearance might have on the FII holding limit for the stock (currently capped at 24%). Any increase would be likely to drive a significant re-rating for Pantaloon Retail," said Nillai Shah, Research Analyst, Morgan Stanley.
Since the CoS recommended FDI in retail, Pantaloon Retail gained 7% to close at 341.8 on the BSE on Monday. Shoppers Stop rose to a new high of 504 on July 25, but could not sustain gains amid choppy market last week. The stock was up 2.9% at 405.5 on Monday. "The big positive is that raising capital to tide over liquidity crunch will become easier for existing players," said Rajesh Cheruvu, head-strategy, RBS Private Banking. This could lead to rerating in stocks like Pantaloon Retail, he said.
Analysts say the CoS recommendation will drive institutional buying in listed retailers in which there has been no significant increase in domestic and FII holdings in the last three quarters. "We are excited by the implications this clearance might have on the FII holding limit for the stock (currently capped at 24%). Any increase would be likely to drive a significant re-rating for Pantaloon Retail," said Nillai Shah, Research Analyst, Morgan Stanley.
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