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Pantaloon Climbs in Mumbai as India Approves Overseas Stakes in Retailers

By Malavika Sharma
November 25, 2011 2:36 AM EST

Pantaloon Retail India Ltd. (PF) climbed the most in 2 1/2 years in Mumbai trading, leading a surge in shares of Indian retailers, after the nation’s cabinet yesterday approved easing of ownership rules for the industry.

Pantaloon, the country’s largest retailer, climbed as much as 18 percent, the biggest intraday gain since May 2009, and was trading up 16 percent at 233.35 rupees as of 12:59 p.m. local time. India’s benchmark Sensitive Index (SENSEX) fell 0.2 percent.

India’s decision to let overseas companies own as much as 51 percent of retailers selling more than one brand is expected to help boost revenue and investment in the industry. Wal-Mart Stores Inc. (WMT), Carrefour SA (CA) and Tesco Plc (TSCO) seek to step up their presence in the world’s second-most populous nation to tap a market expected to double to $785 billion by 2015 from $396 billion this year, according to Business Monitor International.

“The fact that the industry has opened now and many other International retailers can come in will surely have a positive spin off,” Saloni Nangia, senior vice president at Technopak Advisors Pvt. in Gurgaon near New Delhi, said by telephone. “Many of these Indian companies might be likely partners for international companies.”

India’s retail industry will get $8 billion to $10 billion in fresh investments over the next five to 10 years, Kishore Biyani, founder and managing director of Pantaloon, said in an e-mailed statement yesterday. Pantaloon, which operates more than 150 Big Bazaar supermarkets across 90 cities and towns, also runs apparel and consumer-electronics outlets.

‘Win for Consumers’

“It is a big win for consumers as they will have more choices,” said Biyani. “It’s a win for small industries as they will have more retailers creating markets for their products” and farmers will benefit from better prices, he said.

Shoppers Stop Ltd. (SHOP) rose as much as 15 percent and Trent Ltd. (TRENT), Tesco’s India partner, advanced as much as 17 percent.

Overseas investment in the retail industry may help slow the pace of price gains, Reserve Bank of India Governor Duvvuri Subbarao said in the northern city of Chandigarh today. “Its important not only for raising overall growth but also important for containing inflation,” said Subbarao.

India’s food inflation accelerated 9.01 percent in the week ended Nov. 12 from a year earlier, the commerce ministry said in a statement yesterday. The rate has stayed above 9 percent for 16 weeks.

‘Licking Their Lips’

Overseas retailers may be required to invest a minimum of $100 million in India, a government official familiar with the proposals said Nov. 23. At least half the investment must be in back-end infrastructure and stores will be permitted only in cities with a population of 1 million or more, the official, who declined to be identified citing departmental policy, said.

“Foreign retailers must be licking their lips at this opportunity,” said Narayanan Ramaswamy, executive director at KPMG India, which advises retail companies. “It has to be one of the biggest opportunities in the world right now.”

India also allowed companies that sell a single brand to own 100 percent of their operations from 51 percent earlier, Food Minister K.V. Thomas said yesterday.

The government’s move is “an important first step,” Wal- Mart Asia President Scott Price said in an e-mailed statement. The retailer looks forward to “playing a key role” in India, he said.

India permitted foreign retailers to own wholesale stores in 1997. Wal-Mart has set up 14 such stores in India through a joint venture with billionaire Sunil Mittal’s Bharti Enterprises to gain a foothold in the country, while Metro AG operates six wholesale stores. Carrefour opened its first outlet in December.

Fight Food Inflation

“This legal evolution should contribute to modernize Indian food supply chain and to fight against food inflation for the benefit of Indian customers,” Carrefour said in an e-mailed statement. The Boulogne-Billancourt, France-based retailer will wait for final regulations, it said.

The decision to permit foreign retailers came as Prime Minister Manmohan Singh’s parliamentary ally the Trinamool Congress opposed the move. The main federal opposition Bharatiya Janata Party was also against the decision.

“Small and medium retailers, which employ a large number of people, will be affected,” Arun Jaitley, a BJP leader, said in New Delhi yesterday. “We oppose it completely.”

Policy makers have been debating approving the idea for at least the past seven years.

Raj Jain, president of Wal-Mart India, said in April 2010 the company can help reduce prices by improving supply chain and infrastructure to cut waste. About 40 percent of India’s fruit and vegetables rot before they are sold because of a lack of cold-storage facilities and poor transport infrastructure, according to government estimates.

Bharti-Walmart, the local joint venture, buys fresh produce directly from about 1,200 farmers in Punjab and helps them improve their yield through better farming practices, Jain said in May.

-- With assistance from Abhijit Roy Chowdhury, Karthikeyan Sundaram, Andrew Macaskill and Abhay Singh in New Delhi, Anoop Agrawal in Mumbai, Andrew Roberts in Paris, Tushar Dhara in Chandigarh and Anjali Cordeiro in Hong Kong. Editors: Subramaniam Sharma, Suresh Seshadri

To contact the reporters on this story: Malavika Sharma in New Delhi at msharma52@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

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