India: Walmart may exit Flipkart merger after new FDI e-commerce regulations?

New foreign direct investment (FDI) rules regarding online marketplaces may cause issues for the Walmart-Flipkart merger. According to investment bank Morgan Stanley, Walmart may back out of its merger with Indian e-commerce giant Flipkart, reported India Today.

Implemented from February 1, the new FDI rules bar online marketplaces with foreign investments from selling products from sellers in which the online marketplaces hold a stake. The new FDI rules also ban exclusive marketing arrangements.

Morgan Stanley, in a report titled “Assessing Flipkart Risk to Walmart EPS” dated February 4, claimed that “an exit is likely, not completely out of the question, with the Indian e-commerce market becoming more complicated.” The group stated an exit like this would not be unprecedented as Amazon had done the same in China in 2017.

The new FDI regulations are expected to heavily impact Flipkart as the e-commerce giant may have to remove up to 25% of its products from its site. The biggest effect will be on the smartphone and electronic inventory of the website, a high earning segment for the website, due to the government targeting exclusive deals.