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Morgan Stanley marks down stake value in India's Flipkart

MUMBAI (Newsrise) -- Morgan Stanley, a prominent investor in India's largest ecommerce company Flipkart Internet, has marked down valuation of its stake in the online retailer by 27%: a sign of investors growing wary of lofty valuations in an overheated investment climate in the south Asian country.

     A fund owned by the U.S. financial major-- Morgan Stanley Institutional Fund Trust -- said last week in a regulatory filing the value of its investment in Flipkart was worth about $59 million at the end of December, down from the $81 million in June.

     In the middle of last year, Flipkart had raised $700 million from existing investors led by New York-based Tiger Global Management at a valuation of $15 billion. Morgan Stanley's mark down suggests the company's valuation slid to $11 billion.

     A spokeswoman for Flipkart didn't respond to queries seeking a comment.

     Some investors call out Flipkart's stratospheric valuation frothy.

     "This is a classic case of a bubble-burst," said Sharad Sharma, an early-stage investor and co-founder of iSpirt, a software products think-tank. "The valuation bubble in India is a localized phenomenon. It has happened to only the businesses catering to metro consumers."

     The valuation correction comes amid stiff competition among India's startup e-commerce companies -- Flipkart, rival Snapdeal and the local unit of the U.S.-based Amazon.com -- to grab a greater share of India's e-commerce market estimated to be worth $23 billion, which some analysts say will exceed $100 billion in the next five years.

     Flipkart has raised billions of dollars from investors over the last three years to stay ahead in the race.

     In 2015, venture capitals pumped in $7.4 billion to India's startup sector, the largest in the world after the U.S. and China. The amount is roughly 57% higher than in the previous year.

     The euphoria leading up to the spectacular public listing of China's Alibaba Group Holding in the U.S. in 2014 added heft to Indian ecommerce companies, and many investors who failed to cash in on the initial boom swooped down on emerging sectors such as food ordering, financial technologies, on-demand home and logistics services, spawning a roster of Internet startup companies last year.

     Investors are betting on India's huge potential, underscored by rising disposable incomes and the explosive pace of smartphone usage. India is poised to overtake the U.S. to become world's largest smartphone market after China by 2017, according to a recent report by research firm Strategy Analytics.

     Morgan Stanley's recalibration of Flipkart's value is likely to curb the rush of funding to India's startup companies.

     The crash of Alibaba stock mid-last year, amid concerns about the company's business and revenue models, and its ripple effect on the technology stocks in China, has already soured investor sentiment on startup Internet companies across emerging economies.

     Large Internet companies such as Flipkart, Snapdeal and Ola struggled to close funding last year even though they managed to raise cash, and a number of smaller companies shuttered or trimmed down business unable to get fresh funds.

     Sharma said it has yet to be seen if Flipkart's valuation correction will have a ripple effect on the industry.

     "If it is a soft-landing, it will not have any ecosystem repercussions. But if it is a hard-landing, it will also hit the segments which were unaffected by the bubble," Sharma said. "The jury is still out."

     Flipkart is going through the throes a management churn. Last month, the company elevated Sachin Bansal, the chief executive and co-founder of Flipkart, to the role of executive chairman. It appointed Binny Bansal, its chief operating officer and another founder, as the new CEO.

     Earlier this month, Mukesh Bansal, the head of Flipkart's commerce platform, stepped down citing his desire to start a new venture. Bansal joined Flipkart in 2014, when it acquired Internet fashion retailer Myntra Designs, which he co-founded and headed.

     Along with Bansal, Ankit Nagori, the head of Flipkart's chief business officer, too resigned to start a new sports venture.

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