U.S. retail giant Walmart said on Wednesday that it had acquired a 77% stake in e-commerce firm Flipkart for $16 billion, making it the largest cross-border M&A deal involving an Indian business and the largest foreign direct investment (FDI) in the country.

The transaction values the Bengaluru-headquartered firm founded in 2007 by friends Sachin Bansal and Binny Bansal at a whopping $20 billion.

The remainder of the business will be held by some of Flipkart’s existing shareholders, including Flipkart co-founder Binny Bansal, Tencent Holdings Ltd, Tiger Global Management LLC, and Microsoft Corp, Walmart said in a statement. Flipkart’s co-founder and executive chairman, Sachin Bansal, will exit from the company with this deal.

“India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of e-commerce in the market,” Doug McMillon, Walmart’s president and chief executive officer, said in a statement.

“As a company, we are transforming globally to meet and exceed the needs of customers and we look forward to working with Flipkart to grow in this critical market,” McMillon added.

Walmart’s investment includes $2 billion of new equity funding, which will help Flipkart accelerate growth in the future. Walmart and Flipkart are also in discussions with additional potential investors who may join the round, which could result in Walmart’s investment stake moving lower after the transaction is complete. Even so, the company would retain clear majority ownership.

Tencent and Tiger Global will continue on the Flipkart board, joined by new members from Walmart. The final make-up of the board has yet to be determined, but it will also include independent members, Walmart noted in its release.

To finance the investment, Walmart intends to use a combination of newly issued debt and cash on hand.

“While e-commerce is still a relatively small part of retail in India, we see great potential to grow. Walmart is the ideal partner for the next phase of our journey, and we look forward to working together in the years ahead to bring our strengths and learnings in retail and e-commerce to the fore,” said Binny Bansal, Flipkart’s co-founder and group chief executive officer.

Joining forces with the country’s largest e-tailer, Flipkart, will not only offer Walmart a leadership position in the Indian online retail space but will also pit it squarely against its global arch rival, e-commerce giant Amazon.

Flipkart is Amazon’s biggest rival in India, one of the fastest growing online retail markets in the world. It has nearly 100 million registered users and says it facilitates over 8 million shipments every month.

Several marquee investors such as Accel, SoftBank, Tencent, and Tiger Global have invested nearly $6 billion in Flipkart. With this transaction, SoftBank will take a complete exit, while investors such as Tencent and Tiger Global will have partial exits.

Rising disposable incomes, faster Internet adoption, and a young population—nearly half of India’s 1.32 billion people are under the age of 25—make India a highly attractive market for online retailers.

“The deal indicates the attractiveness of India’s consumption market for global majors. With Walmart acquiring stake in Flipkart, we expect enhanced thrust on the online grocery segment. We expect online grocery to be the fastest growing segment in the e-retail space, growing at a 65-70% CAGR to touch Rs 100 billion in revenues by fiscal 2020,” says Ajay Srinivasan, director, CRISIL Research, on the transaction.

Walmart is the world’s largest company in revenue but its presence in India so far is limited to wholesale retail. Though known for its department stories, it is increasingly focussing on online retail. It acquired U.S. e-commerce company Jet.com in 2016.

India’s online fashion market is projected to grow 3.5 times from $4 billion to $14 billion by 2020, and the broader online retail business is expected to grow to $200 billion in a decade.

Doug McMillon and Binny Bansal 
Doug McMillon and Binny Bansal 
Image : Walmart

Industry watchers say consumers should not expect any major changes in their shopping experience because of the transaction. The array of choices to buyers are, however, expected to improved, with a far larger range of Walmart’s private labels now coming on the joint platform, which will act as a huge differentiator in the merchandise. Adrian Lee, research director, Gartner, believes Flipkart may diversify its inventory and merchandise to attract buyers who are yet to start online shopping.

“With the massive user base, India looms as an attractive market for retailers. It’s currently estimated that 15% ($200 million) Indian consumers will be shopping online by end of 2018, and the relatively untapped growth potential is attracting the e-commerce giants. Homegrown companies stand to benefit in the long run. As consumers are more attuned and comfortable to shopping online with e-commerce marketplaces, we see vertical specialists (largest categories being fashion, second electronics) benefiting. High value, more discerning consumers who want differentiated choices and unique offers will seek out specialists to fulfill this need,” said Lee in a statement.

Experts say that the Walmart-Flipkart handshake does not mean that smaller players in the space will be forced to exit. “The smaller players in many cases are more agile and open to new business models. They should concentrate on specialisation within their domains to build up a valuable cache of users seeking differentiated retail experiences,” says Lee, adding that he expects discounts and promotions to continue unabated.

Follow us on Facebook, Twitter, YouTube & Instagram to never miss an update from Fortune India. To buy a copy, visit Amazon.