03
Dec
11

Retail FDI drama continues..

Political logjam continues over retail FDI issue in Parliament. Indian government had finally woken up from its slumber and cabinet passed one of the   boldest reforms in the history of modern India. Although, its timing may be questionable (just before UP assembly elections). I think, government might have been forced to act on reforms front on account of sharply depreciating rupee, ballooning fiscal deficit and policy paralysis criticism from every corner.  For once, I won’t criticize the Congress government. Opposition led by BJP have been protesting against this move. Left which is fighting survival battle has joined hands with untouchables (BJP), as they fondly call them, in stalling parliament proceedings during the winter session. It’s a shame that the world’s largest democracy parliament has not been allowed to function on account of this reform. Instead of discussing the pros and cons of the issue, opposition just wants voting. They are well aware that with allies (TMC, DMK) deserting them on the issue, the government is on a sticky wicket. If voting is done in parliament, government might not have majority on its side.

Retail stocks led by Pantaloon retail rallied hard on account of this FDI reform. Pantaloon was hammered out of shape after its Q2 FY12 results. Short covering and new longs helped India’s largest retailer to rally hard. If news reports are to be believed Pantaloon is in talks with French retailer giant, Carrefour for JV. In long-term this JV will surely help Pantaloon and improve its valuations. But if you read about country politics, then you might have been skeptical about the sharp rise in retailer share price. These kind of reforms are not difficult to pass and especially just before important UP elections. Lot of chief ministers have also raised their voice against allowing foreign retailers setting shops in their respective states. Traders are powerful lobby in this country and they will also protest. I have sold December series OTM calls and puts of Pantaloon retail (I have covered some calls after share price decline). Eventually this bill will pass and Pantaloon share price will rise, but not very sharply (http://www.business-standard.com/india/news/too-early-to-celebrate-for-pantaloon-retail/456608/). Neither its share price will fall very sharply now, as I don’t think this FDI will be rolled back. It might take some time but eventually this reform will be passed. In fact, on very sharp declines, I am looking to buy Pantaloon retail shares.

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