Retail stocks had rallied initially during the finance minister’s budget speech in Parliament. The finance minister set the stage for foreign direct investment in multi-brand retail by talking about inflation, shortcomings in distribution and marketing, cold storage chains, etc.
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But it didn’t materialize and stocks of retail companies tanked. Shares of Pantaloon Retail (India) Ltd fell by 12% from its intraday highs.
The proposal to convert the optional excise duty on branded and ready-made garments to a mandatory levy of 10% is also a negative for the sector, though the cost would be mostly passed through.
Other factors affecting the sector are: higher lease rentals would be a cause of concern for the sector, especially considering that net profit margins are already low; consumer sentiment and higher disposable income is key for the sector; higher employee costs and lack of trained manpower is another concern.