Retail stocks gained on Friday on the back of the cabinet approval of FDI in mutli-brand retail. Vishal Retail, Pantaloons, Trent and Shoppers Stop saw a huge increase in their stock prices.
On the BSE, the scrip of Vishal Retail hit the upper circuit at around 10 a.m., as the stock price rose 19.89 per cent from its previous close to end the day at Rs 22.60.
Pantaloon Retail India (PF) saw its stock price climb 16.67 per cent to Rs 234.05.
Tata Group-owned Trent rose by 8.4 per cent to Rs 1,058.45, while Shoppers Stop was up 6.29 per cent to Rs 395.65.
Key beneficiary
Lovable Lingerie saw its stock price increase by 18.17 per cent to Rs 373.60. Raymond was up 2.55 per cent to Rs 385.95 per share.
According to a report by Prabhudas Lilladher, PF will be the key beneficiary of this reform. “PF will be the single largest beneficiary of this reform, in our view, given its standing as the largest organised retailer of India (nearly15 million sq.ft. of operational space) and presence in multiple formats
CARE Research said, the advent of foreign retailers especially in the multi-brand retail segment would primarily address the liquidity constraints of the big Indian-organised retail chains faced with dichotomy between store expansion and funding the expansion plans in view of the drying-up of fund-raising avenues.
“PF's stretched balanced sheet (Rs 4,500 crore core retail debt, 120 days of inventory) will improve if a Foreign retailer ties up with PF and infuses capital,” said Prabhudas Lilladher report.
The report also adds that the FDI in multi-brand retail will not immediately “solve the current challenges of high leverage, high inventory and lack of FCF generation for PF.”
Lingering doubts
The rise in stock prices is, however, not welcomed by all stock market analysts.
They feel that at these levels the valuations of some of these stocks are too high and, therefore, will come down to more reasonable levels.
Though the proposal from the Government has been welcomed by the investors, there is still some scepticism amongst market-men as to whether the proposal will be cleared at all.
“The rise in the stock price was an immediate reaction to the announcement. However, there is enough pessimism around the Government's policy-making abilities to make people believe that the proposal may not be cleared at all,” said Mr Shrikant Shetty, Equity Research and Technical Analysis, Unicon Financial Intermediaries.
Some analysts believe that since retail is part of the Concurrent List, the States will also have a say on the entry of the foreign players in this segment.