Dive Brief:

• Wal-Mart is in early discussions for a stake in Indian e-commerce company Flipkart, sources have told the Financial Times. Such a deal would help Wal-Mart establish a footing in India, a promising country for e-commerce where Amazon has already forged successful operations.

• Flipkart, founded in 2007 by two former Amazon employees, is a major player in India’s e-commerce market, which Morgan Stanley analysts say could reach $119 billion in sales by 2020, the Financial Times reports. 

• In March, however, Morgan Stanley took a chunk out of Flipkart’s valuation, reducing its assessment of the e-commerce venture by 27%, bringing it down to $11 billion from the $15 billion valuation it enjoyed at the time of its June 2015 funding round. (The financial services firm owns a small stake in Flipkart.)

Dive Insight:

With a population of 1.25 billion, including a growing young, mobile-first generation — many of whom share English as a common language — plus an emerging middle class, India presents significant growth opportunities for retailers worldwide. 

The Indian government’s Department of Industrial Policy and Promotion earlier this year announced new rules that would officially allow up to 100% foreign ownership of e-commerce marketplaces. Those new rules dictate that e-commerce companies must be in the business of providing technology platforms that facilitate trade between buyers and sellers, as opposed to an old-fashioned, “inventory-led model” where a retailer owns the goods it sells — a model decidedly against Wal-Mart’s traditional approach.

The Flipkart investment news comes as Wal-Mart has effectively abandoned its China e-commerce effort with the June sale of its Chinese e-commerce platform Yihaodian to Alibaba rival JD.com. In addition to sometimes arcane regulations in India, other challenges to e-commerce sales in India include an under-developed logistics infrastructure (making delivery difficult) and a dearth of less-skilled workers that can handle customer service and fulfillment.

Bengaluru-based Flipkart is India’s largest homegrown e-retailer, with a gross merchandise value of $10 billion and a track record of raising $3.15 billion in venture financing. Nearly 10 years old, Flipkart has 46 million registered users, 33,000 employees, 14 warehouses and enjoys 10 million page visits each day, according to Quartz India.

Then there's six-year-old New Delhi-based Snapdeal, which recently said it doubled the number of sellers on its marketplace last year to total more than 300,000 sellers. It's well on its way to a projected 500,000 sellers by the end of this year.

But Amazon India has given Flipkart and Snapdeal a run for their money since arriving in 2013. India is providing Amazon with its largest number of new customers after the U.S., and Amazon India's Q4 2015 sales were equal to its total 2014 sales, according to Seeking Alpha. (Amazon hasn't released numbers on its sales in India.)

Alibaba is also a major player in India, with investments in Snapdeal and mobile company Paytm (which itself has expanded to become an e-commerce marketplace) and a rumored deal with Indian conglomerate Tata Sons to jointly establish a new retail venture — a development that, given Alibaba's size and scope, could shake up online commerce across the Indian market if it comes to pass.

Competition is fierce and venture capital enthusiasm is cooling in India as it is in the U.S., but the battle for market share could intensify if Wal-Mart gets in the game. “India is a long-term growth story,” Venkat Viswanathan, founder and chairman of global analytics firm LatentView Analytics, told Retail Dive in email earlier this year. “In the near term you can survive if you have access to funding, and if you can survive during that period you can own that market. Right now Amazon has the advantage in that story.”