New FDI rules may force Walmart to exit from Flipkart: Morgan Stanley

It may be just five days since new foreign direct investment (FDI) policy for e-commerce came into effect. But it seems to have triggered a massive ripple in the e-commerce ecosystem in the country.

What was celebrated nine months ago as a big win for India's startups' ecosystem, following US retailer Walmart acquisition of a controlling stake of around 77 per cent in home-grown e-commerce firm Flipkart for a sum of $16 billion, is now on the brink of a sudden exit.

Walmart may exit Flipkart if the US retail giant does not see a long-term path to profitability, said ET report citing Morgan Stanley in a report ‘Assessing Flipkart Risk to Walmart EPS’.

It further said that the Indian e-commerce market is becoming more complicated after government revising FDI policy. 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, it added.

Flipkart may need to remove approximately 25 per cent of its products majorly smartphones and electronics, which could have significant disruption and top-line pressure on the marketplace.

Over the years, Bengaluru-based firm's gross sales have been largely driven by smartphone and electronic.

On February 1, the govt brought in several restrictive changes to India’s FDI policy for e-commerce. As per the revised policy, online marketplaces can no longer enter into exclusive deals for selling products on their platforms. They also cannot supply more than 25 percent of inventory to a single vendor and restricted to from influencing prices.

Soon after the policy implementation, Amazon and Walmart lost a combined $50 billion (Rs 35k crore) in market cap. According to PwC data, the new policy is said to cost India $46 billion.

However, Minister of State for Commerce and Industry C R Chaudhary on Monday said that better enforcement of the FDI policy on e-commerce will contribute to the growth of the sector.

Meanwhile, both the firms had earlier sought an extension of the Feb deadline but got rejected by the govt.