Further liberalization in FDI policies – 51 percent FDI in multi-brand retail and 100 percent FDI in single-brand retail under the automatic route (against the previous 49 percent) – has attracted major global PE funds to double their investments in the Indian retail sector. As per ANAROCK’s Private Equity in Indian Real Estate report, the total private equity inflows in the Indian retail sector between 2015-2018 stood at US$ 1.84 bn. Of this, nearly US$ 1.2 bn were pumped in between 2017-2018 alone.
US and Canada-based PE funds together invested more than US$ 1.13 bn into the retail sector, bestowing their faith on an industry riding on increasing consumerism which is pegged to rise to US$ 3,600 bn by 2020.
Tier II and III cities were high on the radar of the PE investors, who in the last four years infused almost half of their total investments into the retail sector in cities like Amritsar, Ahmedabad, Bhubaneshwar, Chandigarh, Indore and Mohali.
Shobhit Agarwal, MD & CEO, ANAROCK Capital says, “Our report highlights the fact that unlike the commercial office sector, retail is to some extent geography-agnostic because its success depends on the spending power of its target audience. As a result, shopping malls in Tier II and III cities have performed as well as, if not better than, their Tier 1 counterparts. This also led to increase in rentals and profitability and caused PE investors to start considering investment options outside their accustomed Tier 1 geographies.”
US-based funds like Blackstone and Goldman Sachs invested more than US$ 1 bn funds into the Indian retail sector between 2015 and 2018. Of this, more than US$ 700 mn went into Tier II and III cities; just US$ 300 mn came to cities like Pune and MMR. Evidently, large PE funds have recognized the potential of smaller cities which continue to have a shortage of organized retail despite the rising disposable income and aspiration-driven consumption appetite being generated there.
PE investors from UAE, Singapore and Netherland also showed interest in Indian retail during the period and invested close to US$ 800 mn into it.
Anuj Kejriwal, MD & CEO, ANAROCK Retail says, “The opportunity that the Indian retail sector holds in store for PE investors is more than evident – as are the geographies they must focus on for optimum returns. ANAROCK data reveals that around 39 mn sq.ft. of organized retail space is expected to enter the market between 2019-2022. Of this supply, approximately 71 percent is expected to come up in Tier I cities, and the remaining 29 percent in Tier II and III cities.”
“Ahmedabad, Bhubaneshwar, Ranchi, Kochi, Lucknow, Surat and Amritsar, among others, are the new retail growth hubs where the next chapter of the Indian retail story will play out in the coming years,” says Kejriwal. “In fact, global retailers are now also eyeing cities like Chandigarh, Lucknow and Jaipur, to name a few. There is every reason to expect increasing funding infusions into the retail sector of these cities in the future.”