UP effect: Why retailers are the biggest losers today

Even though Prime Minister Manmohan Singh has assured the industry that the government is making renewed efforts to allow foreign direct investment in mult-brand retail, shares of retailers Pantaloon Retail, Shopper’s Stop and Trent have extended their fall for the second-consecutive day.

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The loss of India’s ruling Congress party in state elections is expected to further delay plans to open up the retail sector to foreign supermarkets.

Pantaloon, Shopper’s Stop and Trent are down by 1.7-4 percentage points in trade today.

As Firstpost noted earlier, the government has been promising investors that some reforms, like allowing foreign direct investment in multi-brand retail, was only a matter of time. Now, that possibility seems very grim with Samajwadi Party’s majority win in Uttar Pradesh as Mulayam Singh is no friend of multi-brand retail.

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In 2007 Reliance Retail was forced to shut down a dozen shops in Uttar Pradesh due to opposition from politically powerful small shop-owners, farmers and middlemen.

Global giants like Walmart, Tesco and Carrefour are waiting in the wings to enter India’s multi-brand retail segment. But with Congress’ failure in UP, doubts remain over its ability of passing big-bang reforms in the forthcoming Budget.

The poll verdict reduces the chances of the Congress-led government attempting to push through policy changes, including allowing foreign companies to set up supermarkets, analysts told CNBC-TV18 on Tuesday.

Bank of America Merrill Lynch in a report said post the results, Congress will need to be more accommodative of regional parties. They feel reforms like GST, FDI in retail, may take longer than expected and that the market will correct in the near-term.

However, many experts are now divided over what will be the key trigger for the market. While some say that the monetary policy and Budget will be key to determining market direction, others believe that the UP elections is an opportunity for the government to take bold steps.