Cabinet clears FDI in multi-brand retail

Thursday’s decision was interpreted as a major signal from the government of its intention to go ahead with key reforms negating an image of policy paralysis

New Delhi: In a major decision, the government on Thursday approved 51% foreign direct investment (FDI) in multi-brand retail paving the way for global giants like Wal-Mart to open mega stores in cities with population of over one million, reports PTI.

The nod from the Cabinet came in spite of opposition from key ally Trinamool Congress (TC) at a meeting chaired by prime minister Manmohan Singh, who was strongly in favour of the move.

Railway minister Dinesh Trivedi (TC) registered his opposition and was told by commerce and industry minister Anand Sharma that he has discussed the issue with his party chief and eastern state West Bengal chief minister Mamata Banerjee.

Sources said that finance minister Pranab Mukherjee supported the proposal saying it would strengthen the rural infrastructure.

Thursday’s decision was interpreted as a major signal from the government of its intention to go ahead with key reforms negating an image of policy paralysis.

The decision will be a game-changer for the estimated $590 billion (Rs29.50 lakh crore) retail market dominated by neighbourhood stores.

Industry, domestic and global players, welcomed the government decision.

The Cabinet also decided to remove the 51% cap on FDI in single brand format under which companies in food, lifestyle and sports business run stores, sources said.

Owners of brands like Adidas, Gucci, Hermes, LVMH and Costa Coffee can have full ownership of business in India.

In the wake of apprehensions that the decision would impact farmers and kirana shops, tough riders have been imposed on the entry of multi-national companies in 53 cities with population of over one million.

The big retailers would bring in minimum investment of $100 million, of which half should be in the back-end infrastructure like cold chains, processing and packaging.

These players would have to source at least 30% of manufactured and processed products from small-scale units.

Battling near double digit inflation, government has been trying to build a consensus on the issue for the last 17 months, contending the entry of multi-national companies (MNCs) in retail would contain inflation.

Considering space constraint in big cities, stores can come up within 10 km of 53 cities with one million population.

Hailing the move, India Inc said the move would help bring in the much needed capital for the sector.

“It is a win-win situation for everyone. With the amount of money to be invested in back-end, supply chain and farm sector will benefit,” Future Group chief executive officer Kishore Biyani said.

Industry body Confederation of Indian Industry (CII) said it strongly supports the introduction of FDI in multi-brand retail as it would benefit consumers, producers (farmers), small and medium enterprises and generate significant employment.

“This would open up enormous opportunities in India for expansion of organised retail and allow substantial investment in the back-end infrastructure like cold chains, warehousing, logistics and expansion of contract farming,” CII president B Muthuraman said in a statement.

While welcoming the government’s decision, industry chamber FICCI president Harsh Mariwala said this is just the first step.

“Seeds have been sown but the fruits will be seen only if other policy initiatives are implemented immediately like adoption of Model APMC Act by all the states, and timely implementation of GST, etc,” he added.

Asked if the decision will affect existing partnerships between Indian and foreign retailers, Reliance Retail Lifestyle president Bijou Kurien said: “As far as Reliance’s existing partnerships are concerned with international brands (in the single brand space), there will be no change.

“And in case of multi-brand, we have learnt a lot in the last five years and are very confident of continuing on our own without partnering with a foreign player.”

Wal-Mart, which has a partnership with Bharti Enterprises for wholesale cash and carry, said it will have to study the policy changes in details.

“We will need to study the conditions and the finer details of the new policy and the impact that it will have on our ability to do business in India,” Wal-Mart India president Raj Jain said.

The decision will positively impact the Indian market and its people and will also contribute toward India’s image as a one of the world’s fastest growing economies and a welcoming destination for international businesses, he added.

Benetton India MD Sanjeev Mohanty said: “We are operating over 425 franchise outlets here and will continue to expand in the same way irrespective of regulatory framework and the amount of FDI allowed in single brand.”

Confederation of All India Traders (CAIT), however, criticised the move terming it as ‘unfortunate’ and will prove to be much detrimental to Indian economy and trade.

“The decision smacks of the unflinching love of the government towards the domestic corporates and MNCs. It can be termed as a bailout package for the domestic corporate houses,” CAIT secretary general Praveen Khandelwal said.

Retailers Association of India CEO Kumar Rajagopalan, however, welcomed it saying:”The decision has come at a time when the consumers are feeling the pinch of inflation and retailers are looking for funds for expansion.”

There are a host of global brands, including Adidas, Reebok, Gucci, LVMH, Hermes, Zara, Mango, Jimmy Choo, Salvatore Ferragamo, Jimmy Choo, Hamleys (toys), Marks & Spencer, OVS and Benetton, in India.

According to FICCI estimates, the Indian retail market is estimated to be around $600 billion, with the organised sector accounting for about 5%.

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SEBI fixes Rs5 crore floor for anchor investors in public issues

The SEBI board today mandated listed entities to submit business responsibility reports (BRRs), as a part of their annual reports. It has also decided to specify a maximum tenure of 12 months for warrants issued along with public/rights issue of securities to avoid the possible misuse

Looking to further deepen the primary market, regulator Securities and Exchange Board of India (SEBI) today fixed the floor for allotment of equity shares to anchor investors under public issues at Rs5 crore.

The SEBI board of directors, which met in Mumbai today, also fixed a maximum tenure of 12 months for warrants that are issued alongside a public or rights issue of securities to avoid possible misuse.

“To make the concept (of anchor investor) more effective, it has been decided to prescribe a minimum allotment size of Rs5 crore and maximum number of anchor investors, slab-wise,” SEBI said in a statement after the board meeting.

Anchor investors buy shares of a company before the launch of a public issue. The concept of anchor investors (AIs) was introduced by SEBI in June 2009, as a class of committed investors who can be relied upon to anchor an issue of capital in all market conditions, adverse or otherwise, it said.

“It has been decided to specify a maximum tenure of 12 months for warrants issued along with public/rights issue of securities to avoid possible misuse. The issuer would also be required to provide disclosures about utilisation of funds so raised, both in the offer document, as well as on a continuous basis,” SEBI said.

Presently, regulations are silent on the tenure of warrants offered alongside public and rights issues.

The market regulator has said that listed entities have to submit ‘Business Responsibility Reports’ as part of their annual reports, describing measures taken by them along the key principles envisaged in the ‘National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business’ framed by the ministry of corporate affairs.

This has been done in order to assess the fulfilment of the environmental, social and governance responsibilities of listed entities.

“To begin with, the requirement will be applicable to the top 100 companies in terms of market capitalisation and would be extended to other companies in a phased manner,” the statement said.

The regulator has also decided to have a separate set of disclosure norms for funds.

“Considering the constraints in disclosure by investee companies regarding funds (such as venture capital funds, etc), which are shown as one of the promoters of such investee companies, it has been decided to specify a separate set of disclosures for them,” it said.

The board meeting also approved amendment to its rules to increase the net worth requirement of Debenture Trustees to Rs2 crore from Rs1 crore earlier.

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Further upmove likely: Thursday Closing Report

If Nifty holds above today’s high it may go up to 4,885

The indices witnessed a smart bounce back in the last hour, erasing nearly half of the losses that were seen in the last trading session on short covering by investors. As we had mentioned in our Wednesday’s closing report, if the index held itself above the previous low we would see a small bounce back. Today, the Nifty crossed yesterday’s lows and made a smart recovery from that level. If the index is able to maintain itself above today’s high of 4,771, we may see an upmove to the level of 4,885. However, the strained upmove may be wiped off if today’s low is breached. The National Stock Exchange (NSE) saw a volume of 83.32 crore shares. Volumes were higher because today was the expiry date for November derivatives.

The market opened flat tracking the weak Asian markets in morning trade and a negative close of the US benchmarks. The absence of any positive triggers on the domestic front also weighed on investor sentiments. The Nifty opened two points higher at 4,708 and the Sensex added 16 points to resume trade at 15,716.

However, the indices could not sustain the initial gains and were soon pushed into the negative amid choppy trade. Selling pressure in the morning session led the market to the day’s low at around 11.30 am. At the lows, the Nifty went below the 4,700-mark to 4,639 and the Sensex fell to 15,480.

Buying interest in select stocks in trade thereafter pushed the market higher. The indices managed to touch the previous day’s close in post-noon trade but the gains were capped by sellers once again.

The market entered the positive territory in the last hour supported by the European bourses, which were trading in the green. The local benchmarks went on to touch the day’s high around 3pm with the Nifty rising to 4,771 and the Sensex going up to 15,901. The benchmarks closed higher with the Nifty gaining 50 points at 4,756 and the Sensex settling at 15,858, up 159 points up.

The advance-decline ratio on the NSE was a positive 885:806.

In the broader market space, the BSE Mid-cap index surged 1.40% and the BSE Small-cap index rose 0.38%.

The BSE Consumer Durables index, which was the long sectoral gainer yesterday, turned out as the only loser today, down 0.21%. The top sectoral gainers were BSE Auto (up 2.45%); BSE Capital Goods (up 2.31%); BSE TECk (up 1.74%); BSE Healthcare (up 1.68%) and BSE Realty (up 1.34%).

Maruti Suzuki (up 4.02%); Bajaj Auto (up 3.71%); Bharti Airtel (up 3.65%); ONGC (up 2.90%) and Larsen & Toubro (up 2.76%). The major losers on the index were Hindalco Industries (up 1.26%); Hero MotoCorp (up 0.95%); Sterlite Industries (down 0.67%); ITC (down 0.10%) and State Bank of India (down 0.06%).

The Nifty leaders were GAIL India (up 4.26%); ONGC (up 4.12%); Sesa Goa (up 3.73%); IDFC (up 3.59%) and Ambuja Cement (up 3.45%). SAIL (down 3.19%); Reliance Power (down 2.61%); ACC (down 1.84%); Hero MotoCorp (down 1.58%) and Ranbaxy (down 0.62%) settled at the bottom of the index.

Markets in Asia settled mostly higher on positive economic data from the US overnight. However a weak German bond auction made investors nervous.

The Hang Seng advanced 0.40%; the Jakarta Composite rose 0.24%; the KLSE Composite surged 103%; the Straits Times added 0.02%; the Seoul Composite gained 0.67% and the Taiwan Weighted settled 0.85% higher. On the other hand, Shanghai Composite declined 0.73% and the Nikkei 225 tanked 1.80%.

Back home, foreign institutional investors were net sellers of stocks totalling Rs1,186.42 crore on Wednesday while domestic institutional investors were net buyers of shares amounting to Rs926.16 crore.

Founder and executive chairman of the country’s only listed microfinance institution SKS Microfinance, Vikram Akula, on Wednesday resigned from the board in wake of the huge losses suffered by the Hyderabad-based firm. Terming the resignation of Mr Akula as ‘voluntary’, the company has appointed PH Ravikumar as its interim non-executive chairman. SKS Microfinance shed its early gains and ended 1.13% lower at Rs114.15 on the NSE.

Jindal Saw has bagged orders worth $190 million (around Rs1,000 crore) to supply large diametre pipes and ductile iron pipes for various export markets. In a communiqué to the exchanges, the company today said these orders would be executed in the next 12 months. The stock jumped 6.91% to Rs120.70 on the NSE.

Financial Technologies (India) has launched five new offerings in the power trading arena. The company, a leader in multi-asset and multi-currency trading and settlement solutions, launched PowerARMS, Tradedart, TSO Computation System, eRegistry and ECS (Exchange Customisation Services). These solutions are currently being used by various power trading exchanges such as the Indian Energy Exchange. The stock lost 0.49% to close at Rs556.

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