Without an Alibaba, fund managers turn to proxy plays

They are investing in logistics and packaging firms to have their finger in the e-commerce pie

Lack of investment opportunities in domestic e-commerce has seen Indian mutual fund (MF) managers turn to proxy entities. In recent months, equity MFs have been nibbling at shares of logistics and packaging companies to cash on the boom seen in Indian e-commerce sites such as Flipkart, Jabong, Snapdeal and Amazon. Unlike America, where e-commerce giants such as Alibaba, Amazon and eBay are listed, none of the top Indian entities have gone public yet.

In the absence of direct plays, fund managers piggyback on companies such as Gati, Blue Dart and Gateway Distriparks, which have delivery tie-ups with leading e-commerce entities. Also, little-known packaging firms such as TCPL and Manjushree Technopak have come on their radar. India’s e-commerce segment is presently $3 billion and is expected to reach $40 billion in the next five years. “The size of opportunity is large. The exponential rise in the e-commerce market will create opportunity for companies running online payment gateways or logistics, along with several other sectors. There are a good number of companies which will be able to translate that size of opportunity into returns to minority shareholders like us,” said Navneet Munot, chief investment officer, SBI Asset Management Company.

Shares of most e-commerce-related companies have outperformed the markets, with many already seeing their stock prices multiply. “With a large proportion of India's population accessing the internet through smartphones and tablets, e-commerce is clearly an emerging theme. With the growth of e-commerce, the entire ecosystem stands to benefit. Adoption of digital platforms offers growth opportunities across the distribution value chain. Hence, from an investment perspective, this emerging theme cannot be overlooked,” said Chintan Haria, fund manager at ICICI Prudential AMC.

The few direct e-commerce investment opportunities available for Indian investors are local search engine firm Just Dial and Info Edge, which operates job and matrimonial portals (see chart).

Experts, however, say buying into an e-commerce company or an entity operating in that space without analysing the potential and fundamentals can be risky. “Not every e-commerce model can be a success. Therefore, the sustainability of the business model needs rigorous evaluation,” said Haria.

Experts believe sale of electronic items like mobile phones and television is shifting from high streets to websites and the trend is going to pick up further. “The number of transactions on an e-commerce company's portal is 100,000 a day, more than all the top three electronic retailers in the country,” said Munot.

Investment experts, however, say that merely buying into an e-commerce company or an entity operating in that space without analyzing the potential and fundamentals can be risky.

"One needs to be cautious, as not every e-commerce model can be a success. Therefore, the sustainability of the business model needs rigorous evaluation," said Haria.