Achchhe Din : New FDI rules can push Walmart to exit Flipkart, warns Morgan Stanley

Walmart CEO Doug McMillon and Flipkart Co-Founder and CEO Binny Bansal during an programme to announce Walmart Inc.'s acquisition of Flipkart 77% stake, in Bengaluru on May 9, 2018. (Photo: IANS)
Bengaluru: Walmart CEO Doug McMillon and Flipkart Co-Founder and CEO Binny Bansal during an programme to announce Walmart Inc.'s acquisition of Flipkart 77% stake, in Bengaluru on May 9, 2018. (Photo: IANS)

“An
exit is likely, not completely out of the question, with the Indian e-commerce
market becoming more complicated,” Morgan Stanley said in a report late
Monday.

The Walmart-Flipkart
saga
might turn out to be similar to what happened with Amazon in China in
late 2017.

“There
is a precedent for an exit as Amazon retreated from China in late 2017 after
seeing that the model no longer worked for them,” read the report.

“We
estimate that Flipkart derives 50 per cent of its revenue from this category,
meaning Flipkart could face meaningful disruption and top-line pressure in the
near term,” it added.

The new FDI rules may require Flipkart to remove as much as 25 per cent products from its platform including smartphones and electronics that constitute a bulk of sales.

There is a
lot riding for both know that this is the last frontier in terms of a
consumption market, since India consumes 67 per cent of its own $2.6 trillion
GDP. Interestingly, Walmart runs Flipkart as a stand-alone entity.

On February
1, disruption was caused in the e-commerce operations in India of the two
companies after the new FDI norms for the e-commerce sector came into effect.

The norm
prohibited the online retailers from mandating any company to sell their
products exclusively on its platform.

In the new
policy, the Commerce Ministry also noted that the online retail firms would not
directly or indirectly influence sale price of goods and services and would
maintain a level playing field.

Amazon India
had to withdraw many of its products and they were listed as “currently
unavailable” as the new norms prohibit the e-retailers from selling
products of companies in which they have stakes.

The two companies have together lost market capitalisation of $50 billion. Amazon lost market capitalisation of over $45 billion on Nasdaq while Walmart lost over $5 billion on the NYSE.

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