Indian E-Commerce Industry Showing Signs of Becoming Rational

Two news items in the past 24 hours serve as positive indicators that India's e-commerce sector may be turning rational.

First is the announcement that MakeMyTrip will buy Ibibo from Naspers in an all-stock deal to combine the two travel companies. In a rare show of applause for an acquirer, shares of MakeMyTrip soared 44 percent in US trading, giving the company a market value of more than $1.2 billion.

The second slice of happiness comes from a Jefferies report that summarizes results from the Diwali festive shopping season that ended about 10 days ago. Bits and pieces from the week-long spree have been reported since the first week of October, with analysts Arya Sen and Ranjeet Jaiswal wrapping it up in a brief note overnight.

"Our channel checks suggest Flipkart and Myntra exceeded their respective internal targets and grew 50% to 100% YoY despite lower discounting than last year."

The emphasis is mine, and it deserves to be emphasized. It's hard to know how reasonable the internal targets were for e-commerce companies this season, but a decrease in discounting is important if the industry is to stand on its own merits and slow the cash burn.

A report from Mint citing multiple unnamed sources points to Flipkart tightening its belt with minimal, if any, impact on sales. Its marketing budget was half that of rivals Amazon India and Snapdeal, yet it still shipped 15 million units in the October 2-6 Big Billion Days sale, almost double the 8 million Jefferies estimates the company shipped last year. Mint also reported positive sentiment from Amazon India, with the foreign entrant pleased with its results meeting expectations.

Flipkart's festive shipments

15 million units

I have no doubt that there's a lot of spin going on, with all players trying to paint themselves as winners during the crucial annual sales season. But the fact that they're even pointing to tamed marketing budgets and lower discounts is itself a recognition of the issues that need to be addressed.

© 2016 Bloomberg L.P.