Flipkart has assured that the home grown ecommerce giant and its backer Walmart are committed to India for the long term, dismissing the recent Morgan Stanley report which said Walmart may look at exiting Flipkart as the new ecommerce regulations will increase the cost of doing business and enhance uncertainties over Flipkart’s losses.
According to a brokerage note February 4, Morgan Stanley estimated Flipkart’s losses may rise 20%-25%.
“An exit is likely not completely out of the question with the India e-commerce market becoming more complicated. There is a precedent for an exit as Amazon retreated from China in late 2017 after seeing that the model no longer worked for them,” the Morgan Stanley report said. It further said that Flipkart could face “meaningful disruption and top-line pressure in the near term” as it may need to take off 25% of the products from its site to comply with the new regulations.
In an email to the employees last evening, Kalyan Krishnamurthy, chief executive of Walmart-backed Flipkart, reviewed by Fortune India, reiterated Walmart's commitment to India and its long term opportunities.
"The report couldn't be further than the truth. Walmart remains extremely confident about the potential of the Indian market and in Flipkart's ability to lead the e-commerce space," Krishnamurthy wrote. "By partnering with Flipkart, Walmart has taken a long-term view of the opportunities and hence is unfazed by any short-term hurdles.”
Walmart, on the other hand, too reiterated its focus on the Indian market, saying it remains positive despite regulatory changes.
“Walmart’s and Flipkart’s commitment to India is deep and long term. Despite the recent changes in regulations, we remain optimistic about the country. We will continue to focus on serving customers, creating sustained economic growth and bringing sustainable benefits to the country, including employment generation, supporting small businesses and farmers, and growing Indian exports to Walmart’s global markets,” Dirk Van den Berghe, executive vice president and regional CEO Walmart Asia & Canada, said in a statement.
In the meantime, the Indian Private Equity and Venture Capital Association (IVCA), the apex body representing AIFs (Alternative Investment Funds) in India, submitted its feedback to the Department of Industrial Policy & Promotion (DIPP) and made a representation to the Prime Minister's Office, demanding a roll back of the new FDI (foreign direct investment) rules for ecommerce firms.
“There is no data to support that small traders have been hurt. Offline retail has been growing at 25% year-on-year for the last 15 years,” IVCA said. “The Indian startup movement will be severely impacted as the bulk of the funding into it will be cut off.”
Last week, the government decided not to extend the February 1 deadline for implementation of revised FDI norms for the country’s fast upcoming e-commerce sector. In an official notification on Thursday, DIPP said the decision was taken after “due consideration”.
According to media reports, two of India’s largest e-commerce firms, Amazon and Walmart-owned Flipkart, have lobbied intensely to get an extension.
The new e-commerce norms ban companies from striking deals with sellers to sell products exclusively on their platforms. Also, e-commerce firms are now barred from selling products through firms in which they hold an equity stake.