In 2013, India Ratings has maintained a negative outlook on the Indian retail sector because of consumer’s optional spending due to high inflation, marginal wage growth and a weak macroeconomic environment, according to the reports given by NDTV Profit.
In India Ratings-rated retail companies, their rating levels have already experienced revenue declines and margin pressures, which results in a high proportion of Stable Outlooks. The agency has already taken sufficient action to accommodate anticipated stress of some of their companies with decreased credit metrics, and still manages to have Stable Outlooks.
Due to the discounts offered by the companies, the sales in 2012 happened, and this trend will be mostly seen even in 2013, which provides volume growth at the cost of margin.
In 2012, retailers focussed on the luxury or premium segment which was a worst hit compared to the retailers who were focussing on other segments, with an expectation of a flat-to-negative profits. In the same year, the retail industry’s working capital cycle had decreased because of the sales incurred due to heavy discount adopted by the retailers.
In order to re-establish the discretionary spending power of consumers, a sustained reduction in consumer price inflation, along with the rise in wages must be done. Even the Government spending may also be a temporary beneficial to the industry.
By allowing foreign direct investment (FDI) in multi-brand retail in India, it might have a positive impact on the retail sector, according to the reports by NDTV Profit.
India Rating agency is not expecting much activity in regards to equity infusion through FDI route, according to Deep Mukherjee, India Ratings director. He also said that the existing retailers must significantly restructure their businesses before receiving investments from FDI.