Walmart is likely to exit Flipkart, if the US retail giant does not see a long-term path to profitability, The Economic Times reported citing a Morgan Stanley (MS) report.

The brokerage said in a report dated February 4 that: “an exit is likely, not completely out of the question, with the Indian ecommerce market becoming more complicated”.

The MS brokerage report came after the new Foreign Direct Investment (FDI) rules for the ecommerce sector came into effect on February 1.

The brokerage report said that Flipkart may need to scrap approximately 25 percent of its products from its site in light of the new rules. The smartphones and electronics category will feel an immediate impact because of the necessary changes which need to made in supply chains and existing exclusivity deals.

“We estimate that Flipkart derives 50 percent of its revenue from this category, meaning Flipkart could face meaningful disruption and top-line pressure in the near term,” it said.

A Walmart spokesperson told the newspaper: “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 announced in May that it will pay $16 billion for a roughly 77 percent stake in Flipkart.

First Published:Feb 5, 2019 9:07 AM IST