In the world of finance, the scene looks like the day the last book in the Harry Potter series was launched: everyone was clambering to get their hands on a copy, waiting with bated breath to see what fate had in store for their favourite fictional hero.
It’s not much different here with the exorbitant investments being made in fledgling e-commerce businesses. In 2012, the Indian Prime Minister allowed foreign operators in the retail industry. This launched the beginning of the e-commerce boom in India as major e-commerce companies received funding from large foreign companies, like the Japanese giant SoftBank Corp. This allowed the websites to pass on heavy discounts and shopping deals to its customers, which fuelled further growth.
Evaluating the e-commerce websites based on their Gross Merchandise Value and future potential, investors are bypassing logical calculations and are funding companies according to what their gut instinct tells them about the future of e-commerce in India. To illustrate, several niche players like Pretty Secrets (lingerie), Happilyunmarried (lifestyle products), Fashionandyou, Firstcry (baby products) and Limeroad (fashion) have secured funding of upto Rs 60 crore– with several websites being valued at over double their actual gross merchandise value (GMV).
Needless to say, the e-commerce biggies Flipkart and Snapdeal have emerged the favourites. According to media reports, Flipkart is already rooting for its third round of funding, at a valuation of Rs 60,000 crore. After recently receiving Rs 3, 762 in funding recently- Snapdeal is now valued at about Rs 18,000 crore.
According to Arvind Singhal, chairman of Techopak, “I frankly do not understand the basis of these valuations. It defies logic. Looking at potential is fine, but valuations have to be sane.”
Though this type of irrational growth in investments in great for Indian e-commerce, it spells out an impending doom for offline retailers. Kishore Biyani of Future group, one of the leaders of the retail industry, said in an interview to Reuters, “It’s all about money. The e-commerce guys have money to experiment – I don’t have this kind of money to blow.”
But e-commerce is shining in the limelight for the moment, with investors willing to putting in moolah for an engorged value that they believe will become real in the future. After all, our ancestors got this proverb right- no pain, no gain!
Editor team is specialized in introducing the marketplace content targeting the Indian online sellers. They plan and coordinate to bring the appealing content for the small businesses on how to partner with the e-commerce sites like Amazon and Flipkart and strategies for improving their online business.
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