Walmart May Exit Flipkart Courtesy of New FDI Norms for E-Commerce Companies: Morgan Stanley

Morgan Stanley believes the Walmart-Flipkart situation right now is similar to what happened to Amazon in China

By February 5th, 2019 AT 5:19 PM
Highlights
  • On August 20, 2018, Walmart completed the acquisition of 77% stake in Flipkart
  • According to the new FDI rules, Flipkart may have to remove as much as 25% products from its platform

Retail giant Walmart may exit Flipkart after India’s new Foreign Direct Investment (FDI) norms for e-commerce companies came into force, US investment banker, Morgan Stanley has warned. “An exit is likely, not completely out of the question, with the Indian e-commerce market becoming more complicated,” the report by Morgan Stanley said late Monday. According to the report, Walmart-Flipkart saga might turn out 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,” the report read.

“We estimate that Flipkart derives 50% 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% products from its platform including smartphones and electronics that constitute a bulk of sales, said Morgan Stanley.

On February 1, the 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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KGF - Kolar Gold Fields

I disagree. Neither Walmart nor Amazon will ever leave a country like India unless they fail spectacularly in the USA. And even if they do leave, there are plenty of foreign companies and investors ready to dive into the Indian market soon enough. Should have thought about this before importing and selling cheap Chinese stuff while sidelining even small online sellers.

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