Why big names are interested in e-commerce

After India’s IT czars Azim Premji and Narayana Murthy evinced interest in the country’s sunrise sector, it is the turn of business leaders such as Ratan Tata to join the $3.5 billion e-commerce sector.

The 76-year-old ex-chairman of India’s largest conglomerate Tata Sons, is reported to be investing in leading online market-place Snapdeal. While Snapdeal termed the reports as speculative, industry sources said that the investment could be in a personal capacity and might not exceed more than ₹100 crore. Sources also said that Tata, who is now Chairman Emeritus of Tata Sons, is known to be buying some minority stake from an existing investor, which means there would be no fresh infusion of funds in Snapdeal.

Ashish Jhalani, founder of advisory and consultancy firm E-tailing India, said that “Ratan Tata’s investment in Snapdeal reinforces that there is no bubble ready to burst in e-commerce as a lot of naysayers believe.”

The investment may be a strategic investment where we may see some closer relationship between Croma and Snapdeal given that Snapdeal’s top selling products are in electronics category, Jhalani added. However, Arvind Singhal, chairman of Technopak Advisory, said, “Several High Networth Individuals make small investments in their personal capacity and one should not read much into it.” Experts wonder whether Tata’s role will grow beyond being just an investor in the company. Sanjay Mehta, a serial entrepreneur and angel investor, said that the fact that these iconic business leaders are trying to align themselves in the ecommerce sector shows that there is some substance in the sector. However, he added that these leaders are looking at the whole sector as Venture Capital firms or just acting as investors.

Citing Wipro Chairman Azim Premji’s investment in erstwhile retail chain Subhiksha, Mehta said that Premji just acted as an investor but did not involve himself in the business, which later turned into one of the biggest debacles in the Indian retail sector.

Premji, through his personal investment Premji Invest, has made strategic investment in Snapdeal and fashion e-tailer Myntra. Narayana Murthy’s Catamaran Ventures has picked up strategic stakes in another fashion e-tailer Yebhi.com and Amazon.in. Murthy’s ₹600-crore fund launched in 2010, has formed a joint venture with global e-commerce giant Amazon’s Asia unit to create a new entity.

This new entity will help small and medium businesses in India. The $3.2-billion e-commerce market in India is now in a high growth stage with domestic players such as Flipkart, Myntra, Snapdeal and Jabong cornering the limelight. targeting gross merchandise volume or GMV (a term used in online retailing to indicate a total sales dollar value for merchandise sold through a particular marketplace over a certain time frame) this year.

Of late, the Indian ecommerce sector has received lot of media attention with Bangalore-based Flipkart raising $1 billion in funding and Amazon announcing $2 billion investments in its Indian business. It is also reported that Snapdeal is in talks to raise another $300 million in PE funding to take on its rivals. The company has so far $233 million funds in private equity and has been valued at over $1 billion. Compared to this Flipkart is being valued at $7 billion.

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