Money has been pouring into India’s thriving e-commerce sector and has encouraged global investment banks, which were beaten to the post by smaller domestic rivals in the initial funding rounds, to push to get in on the action from the country’s booming technology start-ups.
According to reports, Goldman Sachs Group Inc, Morgan Stanley and Citigroup are planning to hire more bankers in India and are regularly attending “bake-offs” to pitch for advisory roles on deals.
India’s e-commerce sector has already received investment from Japan’s Softbank Corp and Singapore’s GIC Private Ltd and Temasek Holdings, however, many large investment banks have previously been reluctant about working in the sector due to the small deal sizes.
Banks are now learning lessons from China, where many banks are struggling to keep up with competition from small digital rivals, and are increasing their efforts to build relationships with young companies.
Large investment banks face competition from local rivals in India such as Avendus Capital which focused on the tech sector way before the deal activity picked up and currently ranks fourth in the advisory league table for announced technology deals in India this year.
In order to compete with local rivals, banks have begun to pitch for relatively small deals at start-ups in hopes they will lead to bigger deals.
According to data from CB Insights, venture funding deals for technology start-ups in India during the first quarter of 2015 were the highest in nine quarters and exceeded deals made in China. India’s total value of investments also topped $1 billion for the third straight quarter.
First Post reports that Citigroup Inc’s Managing Director for investment banking in India, said that the global bank is very focused on the internet space in India and although India has less Internet users than China, a report from Morgan Stanley suggests that online sales could reach over $100 billion by 2020 from $2.9 billion in 2013, making it the fastest-growing market globally.
Reports suggest that global banks are offering services such as loan financing to online retailers such as Snapdeal in hopes this could help them to secure mandates on future Initial Public Offerings (IPOs) because Indian tech companies would need the marketing help from bigger foreign banks on larger IPOs. However, according to First Post, local banks that have created strong relationships with start-ups will not be entirely pushed out by their foreign rivals just yet.