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There is no doubt that these stocks look expensive at their current P/E levels, but there is still huge potential for long-term growth, writes India-based investment professional and IndiaStockBlog contributor Radha Kota.

Unlike the Wall Street Journal article on India's Retail Sector that he summarized yesterday, these thoughts are his very own:

India's retail industry -- which at $280 billion in annual sales is already the world's eighth largest -- is expected to grow about 5% a year in the next decade. These modern retailers account for only 5% of the current market share, which means there is room to grow. 95% of the market share dominated by tiny mom-and-pop stores!

Indians are hungry for a better retail environment. India is one of the youngest countries in the world and its young generation seems to be spending with no limits. And with the current economic growth, lifestyle, and buying power of the young generation, these modern retailers are going to steal more market share from small grocery stores.

And I do not believe that the Indian government has indicated that it would allow foreign direct investment with 100% ownership in the near future. Speculations are that the government might allow upto 49% ownership in this sector. But companies such as Walmart would be more interested in 100% ownership as is possible in China.

Therefore I believe that even if foreign retailers such as Walmart and Target enter the Indian market, they must form partnerships with the Indian retailers and these retailers could be easy takeover targets.

Indian Retailers: Shoppers Stop trades at Rs 360 ($8.2, almost flat for the last six months), Pantaloon trades at 1624 ($37, doubled in last six months), Trent at Rs 925 ($27, increased by 60% in last six months), Provogue trades at Rs 182 ($4.2, 40% down from 3month high of it’s IPO). None of these are listed in the U.S., but can be accessed by U.S. investors via the various Indian funds and ETFs.

[Radha Kota]

Source: Indian Retail Sector Upside Still Significant (IIF, IFN)