Apple's India Plans Set To Materialize With New FDI Norms

It seems that a major obstacle has been cleared from Apple Inc.’s (NASDAQ:AAPL) path to open its own retail stores in India. The new foreign direct investment (FDI) rules for retailers that were outlined yesterday will remove the last roadblock for Apple, at least for a while.

The iPhone maker has been striving to enter this market since the beginning of this year. However, the company’s plans were stalled as the earlier policy required a retailer to source about 30% of the goods from the local market in order to open its retail outlets.

The Indian government has now relaxed its 30% locally sourced products norm for up to three years for foreign retailers. Thereafter, the company will have to comply with the rule.

India has become an important market for Apple as it has started to see saturation in some of its other key markets like China and the U.S. So it’s no surprise that CEO Tim Cook has adopted a number of initiatives to get a fair share of the market, ranging from issuing promo offers to opening a number of development centers. In fact, Cook visited the country last month to meet Prime Minister Narendra Modi and some other key officials to carve a growth trajectory for the company in India.

Apple, which currently holds only 2% of the Indian smartphone market, has vast scope for growth as the Indian smartphone market is growing exponentially. Not only does the country have robust demographic strength and a rising middle class population, but the pro-business government is also opening up avenues for widespread Internet connection. This bodes well for Apple.

We believe that even though the policy has been relaxed only for three years, it might be enough for Apple to get a fair share of this market. Thereafter, it can also consider setting up its own manufacturing facilities in India or get an extension period. But eventually, Apple will have to chalk out plans to source local products, which should be another positive for Apple in our view. This is because it would make the Apple devices more affordable for the price-conscious Indian population.

Apple, it seems, will soon be re-applying for the required permissions and for now it will not have to worry about displeasing China as well.

At present, Apple has a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the broader technology sector are Facebook (NASDAQ:FB) , Yirendai Ltd. (NYSE:YRD) and PetMed Express, Inc. (NASDAQ:PETS) . All three stocks sport a Zacks Rank #1 (Strong Buy).