By: M.S.Yatnatti: Editor and Video Journalist Bengaluru: Internet has penetrated in India very fast. Data charges are most affordable. Era of disruptions or get disrupted. E Commerce is evolving in India. Era of disruptions or get disrupted started . It is evident that the Walmart- Flipkart deal will re-energize the startup ecosystem in India even as global investors will likely gain confidence after seeing the first such liquidity event take place locally. Investors who have ploughed billions of dollars in local startups, especially post 2014, but haven't witnessed many exits, will now want to take new bets, several local startups are reportedly coming with new disrrutive business models whvh will take on Amazon and Wallmart in E-Commerce Platform . Elaborating on what the Walmart partnership offers Flipkart, reportedly Binny said the company will take more long term decisions that weren't possible to take as a VC-driven company. Flipkart will make more and bigger acquisitions in future, especially those that add to the capabilities that the company wants to build to grow. Kalyan Krishnamurthy, CEO ofFlipkart, said the company will look to correct the 'bias' in the ecommerce growth in India which has been primarily driven by electronics and fashion. He expects groceries and furniture to be among the new growth drivers for Flipkart. Binny emphasised the importance of the Walmart deal for India's startup ecosystem. "It's a huge win for the ecosystem. Flipkart had the best of VCs and private equity; now we have the best partner. The deal will act like a flywheel for the country's startup environment,” he said.
According to financial experts the possibility of a capital gains tax of 40% can dampen any investor's enthusiasm to sell. If SoftBank were to sell its 22.3% stake in Flipkart Singapore to Walmart now or any time before August 2019 (at the earliest), it may have to hand over a massive $600 million to the Indian taxman out of its profit of $1.5 billion. Reportedly finanacial and tax experts cited the adverse tax implication of a stake sale as a possible reason for Flipkart's largest shareholder taking a closer look at exiting India's most valuable startup at this juncture. (This was based on conversations with people close to the deal.) It was nine months ago, in August 2017, that SoftBank announced its investment of $2.5 billion in Flipkart Singapore via SVF Holdings (Jersey) LP, an entity in Jersey. More than 500 funds have been set up in this jurisdiction thanks to a favourable investment ecosystem. The fact that Singapore and Jersey have a tax treaty may have also been afactor in SoftBank's decision to invest in Flipkart Singapore via Jersey. Incidentally, India does not have a tax treaty with Jersey.According to SoftBank's founder and CEO Masayoshi Son, the Japanese telecom and internet company's stake is now worth $4 billion, representing a capital gain of $1.5 billion. In this mega deal, the shares of a foreign company (Flipkart Singapore) are to be sold by a foreign entity (SVF, the Jersey-based investment arm of SoftBank) to another foreign company (Walmart).But since Flipkart Singapore holds a significant stake in the operating company Flipkart India, a substantial value of the Singapore entity's shares is considered to be derived from assets in India and sale of Flipkart Singapore shares would be treated as sale of shares of a capital asset in India, This would trigger the provisions for tax on capital gains on indirect transfer of shares (a provision notorious for its retrospective introduction dating back to April 1, 1962 and the prolonged litigation in Vodafone's case). It would result in a huge tax liability in India on shareholders who sell their stakes -- including on SVF Holdings.There is a higher tax on capital gains arising on sale of listed shares, if it is within a year of allotment this is referred to as short-term capital gains. The rate of tax is at the slab rate, which for non-resident entities would be as high as 40% (in the absence of any favourable treaty provisions).Long-term capital gains is much lower at 10% (without indexation benefits) on listed shares held for over a year. But unlisted shares have to be held for 24 months before they are entitled to the 10% rate.)
Buoyed by investments in fintech and B2C (business-to-consumer) operations, reportedly April was a bumper month for startups in India with 50 deals valued at $766 million -- more than six times what was recorded in April 2017, which saw 31deals closed for $121million.A sizable portion of the investments last month were grabbed by Paytm Mall ($445 million). Varthana, which offers financial support to affordable private schools, raised $54 million from a group of investors including ChrysCapital, Omidiyar Network and others.According to reports Beauty retailer Nykaa raised its fourth round of funds. Existing investors Sunil Munjal's family office, consumer goods maker Marico's Mariwala family office and others -- led the round along with existing and new high net worth individuals.It is seen that investors flock towards B2B (business-to-business) or SaaS startups. This time close to 60% investments have gone towards B2C businesses. This is an area that is generally capital intensive,” since several prominent names in the last few months had raised money for lesser valuations, it may have had a positive impact. For instance, Grofers raised $62 million with a 20% drop in valuation. "This reset in valuation is facilitating many deals to go through,”Several new funds have raised money and that these are ready to be deployed in the market like WaterBridge Ventures, which raised $30 million in March, and Omnivore Partners that raised $46 million in February. The fintech space saw 10 deals in April, including CapitalFloat, which raised $22 million from Amazon.