New Delhi, Jan 18 (IANS) The outlook for the Indian retail sector would remain stable in 2012 with concerns remaining over inflationary pressures and economic growth, ratings agency Fitch said Wednesday.

“Sales growth driven by space additions and inflation coupled with stable margins, better working-capital management and flexibility to defer or make expansion plans less aggressive are expected by Fitch to result in the stable credit profile for Fitch-rated companies,” the ratings agency said in a report.

Retailers, it said, would be exposed to economic headwinds leading to a decline in consumers’ discretionary spending because of higher inflation and interest rates.

Fitch lowered India’s real gross domestic product (GDP) growth projections from 8.5 percent to 7 percent for the fiscal ending March 31, 2012. For fiscal 2012-13 the agency has lowered growth projection to 7.5 percent from its earlier projection of 8 percent.

On the foreign direct investment in the sector, the agency said the impact of such decisions would be realised only after two to three years.

“Fitch does not expect any positive triggers in the immediate term and believes that when foreign direct investment is allowed, it would benefit Indian retailers over the next two to three years,” it said.

The government recently permitted 100 percent foreign direct investment in single-brand retail.

However, the proposals to allow overseas equity investments in multi-brand has been put on hold because of widespread protests from opposition and some of the allies of Manmohan Singh-led United Pogressive Alliance government.

Fitch said revenue growth of the Indian retail sector would be supported by inflation and space additions.

The agency believes there is a direct correlation between inflation and same-store-sales growth and the recent trend of decline in same-store-sales growth could potentially be due to the inability to drive volume growth.

“Volume growth concerns may be partially off-set against extended discounting periods. However, discounting may not be able to bridge volume growth concerns for products linked to discretionary spending,” the report said.