New FDI rules may prompt Walmart to exit Flipkart

Retail giant Walmart, which paid $14 billion for Flipkart stock with a promise of an additional $2 billion in physical structure investment, may exit 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," Morgan Stanley said in a report. 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.

However, Flipkart vehemently refuted the claim of the Morgan Stanley report.

“The report couldn’t be further than the truth. Walmart remains extremely confident about the potential of the Indian market and in Flipkart’s ability to lead the ecommerce space,” Flipkart chief executive officer Kalyan Krishnamurthy said in an internal communication to its employees.