Rising internet usage, increasing middle class with greater consumer spending power and the youth demographic representing a greater share of the country's population are driving the Indian e-commerce market's ongoing development, Fitch Solutions has said.
With competition in e-commerce space high -- and rising -- it expects to see plenty of activity in the corporate financing space as market players attempt to gain market share on their rivals.
While there are a growing number of opportunities, said Fitch Solutions, there is also increasing competition between new and existing players.
This bullish sentiment saw Indian retail firm Flipkart raise USD 3.6 billion in new funds from a pool of global investors in a fundraising round that gave the Walmart-controlled company a valuation of USD 37.6 billion.
Since its launch in 2014, the firm has now raised more than USD 10 billion in fresh funds. The latest round of funding was led by Singapore's sovereign wealth fund GIC, the Canada Pension Plan Investment Board, Japanese tech-focused investment firm's flagship fund SoftBank Vision Fund 2, and Flipkart's parent company US retail firm Walmart.
Other backers on the bumper fundraising round include state-backed investment vehicles Qatar Investment Authority, Malaysia's Khazanah Nasional Berhad and Abu Dhabi Developmental Holding Company's venture unit DisruptAD.
Alongside the sovereign wealth funds were further investments from Chinese multinational technology conglomerate Tencent and US investment firms Franklin Templeton and Tiger Global.
The fundraising ranks as the firm's first injection of fresh cash since SoftBank divested its stake in Flipkart to Walmart for around USD 16 billion in 2018 and sees SoftBank support return to the firm after a three-year absence.
Fitch said it also adds to the other Indian tech start-up firms that the Japanese company has supported through its flagship funds, including part of a USD 1 billion fundraising round closed by digital payments firm Paytm in 2019; across two rounds of investment totalling USD 1.3 billion in hotel booking firm Oyo in 2020; and through a USD 250 million investment in ride-hailing start-up Ola which also closed in 2019.
Meanwhile, the firm's fundraising comes ahead of its widely anticipated IPO which could arrive as early as Q421 although the final bourse destination of the float remains unknown.
Fitch said the capital injection will increase competition in the e-commerce arena in India, increasing Flipkart's challenge to market rivals including Amazon India, JioMart, Tata Group, Snapdeal, Myntra and Voonik.
However, Fitch said the pending regulatory changes reinforce a view that e-commerce market growth will continue to be driven by local firms over the long term as key policy changes provide risks to international players. However, this is not enough to put off overseas players in the market.
Amazon continues to invest and expand its footprint in the country and has adopted its approach to adjust to the regulatory changes. At the start of 2021, the US firm entered into an agreement with local retailer Future Group -- a move that set up Amazon India to become the official online sales channel for Future Retail stores, which includes mass grocery retailer Big Bazaar.
The move came on the back of China's Alibaba Group reporting in Q320 that its subsidiary UCWeb was planning to launch an e-commerce service in India, and that Walmart was acquiring its controlling 77 per cent stake in Flipkart in 2018.
With the e-commerce industry forecast to continue growing and new regulation changing the playing field for operators, Fitch expects to see international operators in particular finding new and innovative ways to access the market, providing potential upside in the sector over the near-to-medium term.