Investors bet big on e-commerce sector with $8.4 billion in funding last year

Published: January 8, 2019 4:20:39 AM

India's e-commerce sector raised $2.3 billion in the three months to December, taking the tally for 2018 to a hefty $8.4 billion against $7.5 billion raised in 2017.

Asmita Dey

India’s e-commerce sector raised $2.3 billion in the three months to December, taking the tally for 2018 to a hefty $8.4 billion against $7.5 billion raised in 2017. However, the government’s revised notification on foreign direct investment (FDI) in e-commerce might hurt e-tailers and “will at least be an overhang till more clarity emerges”, analysts at Jefferies said.

In 2018, as many as 13 companies across segments raised funds over $100 million with SoftBank Group, Walmart and Chinese giants Alibaba Group, Tencent and Meituan Dianping being some of the key investors. The most notable transaction was Walmart’s $16-billion acquisition of Flipkart.

The Indian e-commerce market is witnessing a heated battle between Walmart-backed Flipkart and Jeff Bezos-led Amazon; the players together command the lion’s share of an estimated 80%. India had 60 million online shoppers in 2016 and the number is set to rise over 50% by 2026, according to the Morgan Stanley 2017 report. This growth has also been aided by more and more people in India starting to use smartphones.

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With increased mobile penetration and Reliance Jio’s cheap data services,the number of smartphone users is estimated to have grown to 337 million at the end of 2018. The number is tipped to touch 490.9 million by the end of CY2022, according to research firm eMarketer. At the end of CY2017, the total number of smartphone users stood at 291.6 million.

E-retailers continue to attract funds. Alibaba-backed BigBasket and SoftBank-supported Grofers are in talks to raise more funds. Zomato is also understood to be in discussions to raise up to $1 billion. This comes close on the heels of Bengaluru-based Swiggy having mopped up $1 billion in December led by existing investor South African Internet and media group Naspers.

In what has come as a jolt to e-commerce players, the department of industrial policy and promotion (DIPP) in late December reviewed the FDI policy  in e-commerce that bars marketplace entities from stitching exclusive partnerships with sellers. The inventory of a vendor will be deemed to be controlled by an e-commerce marketplace entity if more than 25% of purchases of such vendors are from the marketplace entity or its group companies, according to the DIPP press note.

“The most significant change is a rule preventing e-commerce marketplace or its group companies from owning any equity in vendors selling on its platform. This could significantly disrupt the business model of leading players if implemented,” analysts at Jefferies noted.

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