Last month, India implemented new regulations for foreign e-commerce firms including Amazon and Walmart-owned Flipkart, placing pressure on the two conglomerates.
According to Mukesh Aghi, the U.S.-India Strategic Partnership Forum president, the abrupt change in e-commerce regulations can pose a severely negative impact on the growth of U.S. companies in India.
Following the two-week recovery of the Dow Jones, the share prices of Amazon and Walmart have rebounded fairly strongly.
On the day, Amazon and Walmart recorded 2.88 percent and 1.24 percent gains respectively, extending the momentum of the U.S. stock market.
However, in the mid-term, the two retailers may be vulnerable to a quick downturn, especially if the government of India continues to tighten e-commerce policies in the months to come.
Last year, Amazon allocated more than $5 billion to penetrate into the Indian e-commerce market while Walmart acquired Flipkart for over $16 billion.
The multi-billion dollar bets of the two companies on the growth of India’s e-commerce sector are on weak footing, and depending on the decision of the government, the struggles of the two giants could be reflected in their stock prices.
Throughout December 2018, analysts mainly attributed the fall in the stock market of the U.S. to the country’s trade war with China because the political conflict remains outside the control of companies.
The uncertainties in the outcome of the trade war were sufficient to fuel one of the steepest sell-offs of the U.S. stock market in modern history.
The lack of transparency in the e-commerce sector of India and the instability in the government’s policies may lead investors to fear for weak performances by the two firms in the long run.
As Mukesh Aghi said:
A sudden change in rules is not helpful. It sends a message to groups that the environment is not transparent.
Speaking to FT, a source said that Flipkart is concerned that the request of the government of India for foreign e-commerce companies to comply with new laws by the end of January is a big ask and that it may disrupt its business.
“There are a lot of sellers who buy from our wholesale entity — it will be hard for them to diversify the supply base so quickly. Such a massive impact so suddenly will leave capacity under-utilised,” the source said.
A high level of volatility in national policies creates a difficult environment even for large conglomerates to operate in and adjust swiftly.
Currently, both Amazon and Walmart’s Flipkart are engaging with the government to adopt the new guidelines and adapt to the newly established changes as soon as possible.
But, the newly emerged policies are expected to largely affect the businesses of the two corporations, at least in the short-term.
It remains to be seen as to how foreign companies will deal with the government of India’s new policies. Some analysts have suggested that several companies may be forced out of the local market due to the inefficiency of some regulatory frameworks.
Featured Image from REUTERS/Abhishek N. Chinnappa/File Photo