Friday, November 25, 2011

Retail opening cheers big firms

Commercial space and shops in Tier-1 and Tier-2 cities will now see a jump in prices. In London Tesco Express is ubiquitous and found in every corner of the city. Tesco Express'es operate in 1000 sq ft of space. I forsee every suburb to have multiple mini big box express shops of every retailers as there is very little available retail space in most of these areas.  I would not be surprised  if prices of commercial shops rise another 25% from here. 

(Reuters) - India's move to open its supermarket sector to foreign investors brought relief to its capital-starved local chains but failed to impress small-shop owners who dominate retail in the country, despite rules intended to safeguard small operators.
The government approved its biggest reform in years by allowing global supermarket giants such as Wal-Mart Stores Inc and Tesco to enter India with a 51 percent stake in the hope it would attract capital to build much-needed supply chains and improve efficiency to alleviate food-driven inflation.
"This is an extremely important step for domestic retailers as this will get in much-needed capital, apart from domain knowledge," said Thomas Varghese, chief executive of Aditya Birla Retail.
Chain stores account for just 6 percent of a $500 billion retail market dominated by street stalls and corner shops.
Many Indian chains are cash-strapped and loss-making, struggling to build scale given high costs, poor supply chains and scarce real estate and have been eyeing equity investments and joint venture partnerships with global firms to build scale.
Vijay Karwal, head of consumer, retail and healthcare for Asia at Royal Bank of Scotland based in Hong Kong expects more than $5 billion in foreign investment into the Indian retail sector over the next five to seven years.
Given the relative lack of modern retail infrastructure in India, and particularly in the enabling back-end infrastructure ... the vast majority of investment this change is expected to trigger would be greenfield investment into new retail sites and infrastructure," he said.
Shares in Indian retailers Pantaloon Retail, Shoppers Stop, Trent jumped -- bucking a fall in the wider stock market -- on expectations that they will form tie-ups with foreign players, and not just compete with them.
Debashish Mukherjee, partner and vice-president at consultancy firm AT Kearney, expects joint ventures and investments in local players from overseas operators over the next six months.
"The set of transactions which will happen fast is foreign players who are in existing joint ventures with Indian firms, the increase or decrease in stake, will happen quickly," he said. "The second are a set of deals that are waiting to happen and have been just waiting for the announcement."
To appease opponents, the government said foreign stores will only be permitted in cities of more than 1 million -- of which India has more than 50 -- and individual states can decide whether to allow global players on to their patch.
It also insists that foreign retailers source almost a third of their produce from small industries, invest at least $100 million in India and spend half of that on infrastructure such as cold storage and warehouses.
Many small shop owners fear for their livelihoods.
"It will affect my business as families prefer going to air-conditioned stores with fancy packaged goods these days," said Vinod Jain, a 27-year-old small grocery shop owner in the Lower Parel neighborhood of central Mumbai.
A trade group representing so-called "kirana" shop owners is planning protests.
"The move to let the foreign retailers in will most certainly lead to job losses," said Praveen Khandelwal, general secretary of the Confederation of All India Traders.
"They should have worked on some kind of protectionist mechanism for smaller traders before coming out with this policy," he said.
Foreign retailers who welcomed the Indian government's move to open the sector also view the entry conditions with caution.
"Some of the conditions look quite stringent. The investment in particular -- it's all quite big money. We'd need to know the details, and how that would be accounted for," said an official with a major global retailer who did not wish to be identified.

Wednesday, November 23, 2011

India's property prices bite the dust - with a few exceptions

Hindustan Times reports on NHB's index.

Residential property prices have dropped across most cities, with an exception of Delhi, Mumbai, Chennai and Pune, mirroring the trend that consumers are perhaps putting off planned house purchases due to rising interest rates and fall in disposable incomes. The movement in prices of
residential properties has shown a decreasing trend in nine cities covered by the National Housing Bank's (NHB) Residex during the July-September quarter of 2011 compared to the previous three months. ( see table)
NHB Residex tracks the housing prices in the select 15 cities. The classification has been designed so as to give the most representative index for each city based on the transactions in the market and data collected from various sources.

The data is put through a model that depicts the actual behaviour of the market and throws up the index.

Bank credit has slowed down in most sectors during the last six months prompted by deceleration in investment demand. Latest data mirror strong warnings on consumer spending slowdown.

Loans to real estate have also slowed down sharply to 2.3% during the first six of 2011-12 from 10.3% in the previous year.

The RBI has raised interest rates 13 times in the past 19 months to tame prices.

Credit growth to industry during April to September decelerated to 7.5% from 8.1% last year.