Wall Street Firm Morgan Stanley Warns Walmart May Exit India’s Flipkart

Source: Flipkart

Walmart may Exit Flipkart and India, according to a new report by Wall Street firm Morgan Stanley.

On February 1, 2019, a new law (FDI or Foreign Direct Investment) in India severely restricts foreign owned online marketplaces from owning their vendors and prohibits them from controlling inventory sold on their platforms.

Morgan Stanley estimates that Walmart may need to remove about 25 percent of its inventory to comply with the new FDI rules.

Tech products such as smartphones would feel the greatest impact because of existing supply chains and exclusivity deals the company has.

“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.”

Morgan Stanley Report

With electronic sales being a large contributor to Flipkart’s gross sales, the impact of significantly reducing the inventory could be damaging.

However, Walmart claims it is still optimistic about the eCommerce opportunity in India.

“Despite the recent changes in regulations, we remain optimistic about the eCommerce opportunity in India given the size of the market, the low penetration of eCommerce in the retail channel and the pace at which it is growing. As Walmart scales in India, the company will continue to partner to create sustained economic growth across agriculture, food and retail. Future investments will support national initiatives and will bring sustainable benefits to the country.”

Walmart Spokesperson to The Economic Times

Amazon Has Similar Problems – eBay to Benefit?

Amazon also has to address its Indian operations as it is making operational changes in two companies in which it has a significant interest.

The rule changes caused by FDI are creating headaches for American-owned eCommerce companies and require a total rethink of their Indian operations.

Since eBay works with independent sellers, could this rule change speed up eBay’s re-entry to the Indian marketplace?

As a pure marketplace, it really has minimal FDI compliance issues as the company doesn’t own its sellers and could develop logistics and marketing operations to benefit small US and European sellers. But will it?

READ MORE: Walmart and Flipkart Announce Completion of Walmart Investment in Flipkart

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