Is Indian eCommerce sector a bubble in the making?
AdvertisementAs valuations of Indian eCommerce firms continue to hit stratospheric levels, market players begin to wonder if the sector is turning into a bubble that can burst anytime now. The ever-surging ticket size of funding availed by eCommerce players has given rise to questions on the sustainability of the whole business model, which revolves around the idea of frenetically growing to as much market share as possible without even the distant visibility of making real profits.
The Indian startup ecosystem received more than $5 billion in funding in 2014, compared with $1.6 billion in 2013 and $760 million in 2012. Of this, Flipkart raised around $1.9 billion, while
A comparison of valuation between eCommerce firms and traditional players would give a sense of the growing chasm between the two segments— while Flipkart is valued at $11 billion, brick-and-mortar players Trent, Future Retail and Pantaloons are valued at $800 million, $600 billion and $200 million, respectively. Flipkart and Snapdeal alone are valued much higher than the total market capitalisation of India’s major brick-and-mortar retailers.
The recent move by
The huge valuations are based on the thinking that Asia’s third-largest economy, supported by a growing middle-class and smartphone revolution, presents a vast opportunity for online retailers.
However, considering the fact that India’s e-tail channels are forecast to account for about 10% of the overall retail market in 2025, the unexplored marketplace doesn’t explain the hyper valuations that Indian eCommerce companies are enjoying.
Critics argue that eCommerce valuations are driven by the hyper demand created by investors who are blindly chasing growth and market share rather than any perceivable improvement in the e-tailers’ financial performance.
However, there are others who believe that there is indeed substance in the eCommerce story and that fears of a possible burst is unfounded.
According to a recent report by
According to UBS, the marketplace model will gain further prominence, driving online purchases. The adoption of mobile commerce driven by the breath-taking pace of growth of smartphone penetration in the country is another key factor that will lend a leg-up to the sector, say analysts.
AdvertisementUsing China as a benchmark gives credence to the argument—Internet penetration in India in 2019-20 will be similar to China's in 2012, clearly pointing the vast universe waiting to be explored in terms of increasing online trade. Fast changing customer demographics also is a huge positive for the sector—next gen buyers below 35 years of age who would prefer to revolve their lives around a litany of mobile devices that are launched every second day are going to be the powerhouse which will take the eCommerce or rather mCommerce revolution in the country to the next stage.
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