Deepak Parek, Chairman of HDFC and Dr Ashok Ganguly, former chairman of Hindustan Lever and member of Rajya Sabha, have jointly issued a statement on Sunday afternoon supporting the government move to invite foreign investment in retailing
Even as the government is dithering about its decision to open up the retailing sector for Foreign Direct Investment and is all set to defer the ill-timed decision, two well respected businessmen have issued a joint statement supporting the government move. The statement makes the important point that retailing is a tough business "margins are thin, large parcels of real estate are not easily available and the supply chain logistics ranging from warehousing, cold storage to transportation pose a major challenge." Hence, argue Mr Parekh and Dr it is"illusory to believe that the market will be flooded with FDI." Here is the full text of the statement
"India always prided itself on its vibrant democracy. It was large and noisy, but it worked. Today, there is concern over India’s overall economic slowdown. From ambitions of double digit GDP growth rates, the slide has been swift. Yet in the broader scheme of things, a slowing economy seems to pale in comparison to the larger crisis at hand – that of a Parliament that is completely unable to function in the way these sacred institutions were set up to be. A democracy encourages openness and permits dissent, but perennial disarray and disruption is sacrilegious. So as the nation interminably and unproductively quarrels about ‘India’s tryst with destiny’, the more important question is how should some semblance of order be restored in Parliament?
During the course of the year, sections of Corporate India together wit the common man raised its voice over many misgivings of the government. Th government of the day gave a hearing and remedial action, though in small measure, was initiated. Many concerned with the prospects of Corporate India said stem the slowdown, increase investments, bring in new reforms. No one objected till then. But when the Government began to act, what have we, but chaos and adjournments over a decision to allow foreign direct investment (FDI) in retail.
There are 32 bills in this winter session of Parliament for consideration and passing, many of which are of far greater consequence and importance for the country than FDI in retail. The protests on FDI in retail are misconceived and unfortunate, but hope to salvage this situation should not be lost.
FDI in retail has not been a sudden decision taken by the government. On the contrary, the idea has been toyed with for over 14 years. Detailed discussions with various stakeholders have been held, experts consulted and studies commissioned based on international experiences of organised retailing.
Modernisation of retail trade is an essential part of India’s growth story. It is well known, from experiences of countries such as China, Indonesia and several others, that modern retail trade and traditional traders can, and do, prosper side by side, raising employment along the supply chain, improving farm incomes, reducing spoilage and delivering affordable products to consumers.
Opposing investment in modern retail for the sake of it is only defending vested interests to the detriment of the vast majority. The farmers, the consumers and the common people must raise their voices against this false drama of apprehension against investment and modernising trade in agriculture and consumer goods. For example, in a district which grows the largest amount of potatoes in the country, more than 50% rots in the fields due to inadequate cold storage facility and supply chain, to utter distress of the farmers and at the cost to the end consumers. There are thousands of similar events every year across the country.
What is intriguing and bewildering is that the false alarm of FDI is continuing to be used after so many years, as a bogey in modern times against foreigners and foreign investment. It is completely deluded to argue that kirana shops will be wiped out with the onslaught of FDI in retail. What does hurt the kirana shops are them having to down their shutters to support bandhs.
It is important to articulate the economics of FDI in retail. It is illusory to believe that the market will be flooded with FDI. Retailing is not an easy business – margins are thin, large parcels of real estate are not easily available and the supply chain logistics ranging from warehousing, cold storage to transportation pose a major challenge. More importantly, the central government’s role in retail FDI is minimal. The greater onus lies with the state governments as a maze of laws ranging from Shops and Establishments Act to the APMC Act, amongst several others falls within the state’s domain. Progressive states that wish to attract FDI in retail will encourage investments and vice versa. Either way, the fruits of organised retailing will not happen overnight, but will take several years.
To conclude, this is a call to the saner sections of Corporate India to come out and strongly support progressive measures and reforms with the same spirit and gusto with which we take the liberties to criticise policies or issues we do not appreciate."
Nifty to range between 4,900 and 5,170 for the week
The market brushed aside negative economic indicators on the domestic front and took support from positive global cues this week. The indices ended in the positive on four of the five trading days with FII inflows gathering pace on the last three days. The market notched gains of 7% in the week, ending its four-week losing streak.
The Sensex jumped 1,151 points to close the week at 16,847 and the Nifty settled 340 points higher at 5,050. The market rally is likely to see some correction if the Nifty is not able to maintain above its current high.
Positive global cues helped the market close higher on Monday, reversing the decline in the earlier two weeks. However, the political impasse over the government’s proposal to allow 51% FDI in multi-brand retail saw the indices closing lower on Tuesday. The market factored in the dismal GDP numbers for the September quarter and managed a green close on Wednesday. Efforts of the top six central banks to provide cheaper liquidity to European banks lifted the market on Thursday while across-the-board institutional buying helped the indices settle higher on Friday.
All sectoral indices closed in the positive with BSE Metal (up 11%) and BSE Bankex (up 8%) were the top gainers, while BSE Healthcare (up 3%) and BSE Consumer Durables (up 2%) settled at the bottom of the list.
The top five Sensex stocks were Hindalco Industries (up 19%), Tata Steel, State Bank of India (up 12% each), Tata Motors and Jaiprakash Associates (up 11% each). There were no losers this week.
The Nifty was led by Hindalco Ind (up 19%), Tata Steel, Tata Motors, SBI (up 12% each) and Reliance Communications (up 11%).
The economy expanded at the slowest pace in two years at 6.9% in the September quarter of the current fiscal, compared to 7.7% in the first quarter of FY11-12. For the first half of the fiscal, the gross domestic product (GDP) growth rate stood at 7.3%. Policymakers and analysts have pegged GDP growth for the full fiscal between 7.1%-7.5%.
From a peak of 82% in July, export growth slipped to 44.25% in August, 36.36% in September and 10.8% in October, the lowest since October 2009, when it contracted by 6.6%. Imports grew at a faster rate of 21.7% to $39.5 billion leaving a trade deficit of $19.6 billion, the highest ever in any month in the last four years.
Commerce secretary Rahul Khullar has expressed concerns over the increasing balance of trade and said that at this rate, it may breach $150 billion mark during 2011-12.
Encouraged by a steep fall in food inflation to 8%, finance minister Pranab Mukherjee said the overall rate of price rise will moderate to around 6%-7% by March 2012. Food inflation declined to 8% for the week ended 19th November from 9.01% in the previous week.
Growth of eight infrastructure industries—crude oil, petroleum refinery products, natural gas, fertilisers, coal, electricity, cement and finished steel—slowed down to 0.1% in October this year, from 7.2% expansion witnessed in the same month last year. Barring electricity, cement and steel, all the remaining segments registered negative growth in the month under review.
On the global front, the US unemployment rate tumbled to a two-and-half year low of 8.6% in November, from 9% in October. The news could temper the appetite among some Federal Reserve officials to ease monetary policy further. The report also dampened speculation that Federal Reserve in its meeting on 13th December will embark on another round of large-scale asset purchases.
Seeking to halt the euro’s drift towards collapse, German chancellor Angela Merkel on Friday took steps to calm the financial markets when she said it was time to stop talking about a fiscal union and start creating one. Interest rates on Italian and Spanish government borrowing fell sharply on Friday and markets rose on hopes that the leaders are taking the euro crisis seriously and are working towards avoiding a breakup of the EU.
The bulls have staged a smart comeback but the volumes during this rise have been poor, raising a question mark as to its sustainability. The battle is not over yet as the bears will try to re-assert themselves in the week ahead
S&P Nifty close: 5050.15
Short Term: Down Medium Term: Down Long Term: Down
The Nifty opened smartly higher for the week and held on to the gains, which made the bears sit up and take notice. Subsequently the bulls succeeded in holding the Nifty above the 4,800 points level (double bottom target) which sent the bears scurrying for cover. This saw the Nifty post a phenomenal recovery of 340 points (+7.22%). The sectoral indices which outperformed the market were BSE Metal (+10.52%) and BSE Bankex (+8%) while the ones which underperformed were BSE Consumer Durables (+1.82%), BSE Healthcare (+3.52%) and BSE Capital Goods (+4.20%).
The weekly histogram MACD remained below the median line confirming that the bears remained in control. The bulls have staged a smart comeback but the volumes during this rise have been poor, raising a question mark as to its sustainability. Therefore the battle is not over yet as the bears will try to re-assert themselves in the week ahead.
Here are some key levels to watch out for this week.
The bulls have staged a smart comeback but they have to ensure that they do not lose too much ground in the weeks ahead.
1. Resistance in rallies is pegged at 5,109 points and 5,263 points (61.8 and 78.6% retracement levels of the fall from 5,399-4,639 points.
2. The volumes in last week’s rise have been poor implying that this is corrective in nature and should be sold into.
3. The bounce as expected till 1st December has materialized and one should now sell at the beginning of this week and wait for a corrections.
4. Immediate support is pegged in the “gap area” between 4,851-4,916 points. A close of this would be a sign of weakness.
A temporary bottom as expected materialized around the 23rd November which did trigger off massive short covering up to 1st December, retracing more than 50% of the recent decline from 5,399-4,639 points. One should sell at the beginning of this week and wait for a couple of weeks to see how far the correction goes as this could determine the future course of the market in the months ahead.
(Vidur Pendharkar works as a Consultant Technical Analyst & Chief Strategist, www.trend4casting.com)