Domestic e-commerce majors such as Flipkart and Snapdeal will require another $20 billion (₹1.27 lakh crore) to sustain their current growth momentum over the next five years, according to a report by a global investment banker.
Although fund-raising may not be a challenge for the e-tailers, as investors line up to tap the potential of the market, the projection suggests that the online retailers should maintain a growth of over 100% despite huge losses.
India is expected to become the second-largest digital market globally by 2030, with China being at first place, according to a report by Goldman Sachs.
The banker estimates the country's e-commerce market to grow 15 times to $300 billion by then, occupying 2.5% of the gross domestic product (GDP).
The online retail sector in the country is "evolving into a hyperlocal, on-demand market," Goldman Sachs said in a note to The Economic Times.
Online retailers have already been criticised by many industry watchers for their skyrocketing valuations and deep discounts.
Backed by big investors, Flipkart, the largest company in the Indian e-commerce space, saw its valuations skyrocketing to $15 billion from $1.5 billion valuation in October 2013. In 2014 alone, the company raised a capital of around $2 billion.
A major chunk of funds raised by online retailers are being spent on attracting the new customers to online shopping through huge discounts and various marketing initiatives.
"The Indian e-tailer on average incurs 1.35 times of the GMV (gross merchandise value) sold as expenses, suggesting gross losses of 35%," said Rishi Jhunjhunwala, Piyush Mubayi and Venkat Surapaneni, analysts at Goldman Sachs.
Flipkart never booked profits since its beginning in 2007, despite its GMV growing to $4 billion recently. The company plans to double its GMV to $8 billion by the end of this year, Business Standard said.
"We believe this is likely to continue till the online shopping penetration reaches a steady state in about 5 years from now," they added.
According to a study by management consultancy AT Kearney, growth of Indian e-commerce market is hindered by poor broadband and mobile internet access.
