Why India’s e-commerce start-ups are on investors’ radars

19 July, 2021 12:00 AM printer

India's shoppers are shunning brick-and-mortar outlets for the convenience and security of the web.

A validation of the trend in the country that is set to overtake China as the world’s most populous nation came last week with Walmart-owned Flipkart – India's rival to Amazon – raising $3.6 billion in new financing ahead of an expected initial public offering (IPO), report agencies.

“We have started to see a select few players cornering most of the market share,” said Nikhil Kamath, co-founder of asset management company True Beacon and brokerage Zerodha. “Naturally, competition has gotten intense.”

Digital payments company Paytm, backed by SoftBank, is seeking regulatory approval to raise more than $2.2bn in what would be one of the country's biggest stock market listings.

While the pandemic may dent the pace of economic expansion, online sales are growing in tandem with the increasing uptake in digitilisation of businesses amid the Coivd-19 pandemic.

E-commerce sales in Asia's third-largest economy are projected to grow 18.2 per cent annually between 2021 and 2025 to 8.8 trillion rupees ($120bn), according to consulting firm GlobalData. E-commerce payments are forecast to grow 16.8 per cent this year to 4.5tn rupees, compared to 12.2 per cent growth in 2020.

“The Covid-19 crisis has accelerated the digital payments shift in India and opened e-commerce to a whole new set of consumers and merchants who were not using online channels earlier,” said Ravi Sharma, the banking and payments lead analyst at GlobalData.

“Rising consumer preference for online shopping, proliferation of e-retailers and emergence of new payment methods will continue to drive e-commerce growth in India.” Major e-commerce retailers in India, such as Flipkart, Amazon and BigBasket, have seen a rise in orders every month since the outbreak of the pandemic, according to GlobalData. Online purchases of groceries, electronic goods and healthcare products have all registered strong growth, according to the consultancy.

The uptick in e-commerce has been fuelled by a rise of smartphone ownership and internet access, an increase in digital literacy and the Indian government's digital push, Mr Sharma said.

Such a favourable environment is prompting companies in the digital space, particularly established e-commerce platforms, to go public and capitalise on investor interest that can help them expand.

Bangalore-based Flipkart is expected to go for a public listing – this year – as it aims for a $50bn valuation. The company's latest fundraising round saw Japan's SoftBank reinvesting in Flipkart after it sold off its 20 per cent stake to Walmart as part of a deal completed in 2018, when the US retailer took a majority stake in the Indian e-commerce start-up.

lipkart, which has some 350 million registered users, plans to use the funds to expand its operations and boost its fashion and grocery segments.

“With increased competition from both domestic and international players, e-commerce could grow in double digits in the coming years,” said Gaurav Garg, head of research at CapitalVia Global Research, an Indian stock advisory firm.