Swiggy shareholders approve foreign ownership cap, enabling inventory model for Instamart

Indian technology firm Swiggy has received shareholder approval to limit aggregate foreign ownership to 49.5%. This move is crucial for the company to qualify as an Indian-owned and controlled entity (IOCC), which will enable its quick-commerce service, Instamart, to transition from a marketplace model to an inventory-led one.

Under the proposed inventory-led model, Swiggy will have the ability to directly own and sell inventory. The company anticipates this shift will provide greater control over procurement, inventory management, and supply chains, potentially improving Instamart's margins by an estimated 80 basis points per order. The transition is expected to occur within two to four quarters following the shareholder approval.

The company's board first proposed the 49.5% foreign ownership cap in July, after an earlier resolution related to IOCC was rejected in May. The updated proposal caps foreign ownership on a fully diluted basis and includes amendments to the company's Articles of Association to comply with India's foreign exchange regulations.

Instamart currently operates on a marketplace model, relying on third-party sellers. The inventory-led approach would allow Swiggy to procure and manage goods directly, offering better control over product availability and the ability to leverage demand data for procurement planning. However, this model also entails increased risks related to inventory holding and working capital.

The change in ownership structure could impact Swiggy's appeal to certain foreign investors. Analysts estimate potential outflows of passive fund investments, possibly up to $400 million, if Swiggy no longer meets eligibility criteria for global indices such as MSCI and FTSE. This investor-related consideration is separate from the operational benefits of the new inventory model.