The much-touted proposal of Chinese giant Alibaba's stake purchase in Indian e-commerce firm Snapdeal may have "fallen off" due to high valuations being sought by the homegrown online marketplace.
The deal, which was being pegged at about $500-700 million, has hit a roadblock due to a high valuation demanded by Snapdeal, sources said.
Both the companies declined to comment on the matter, but sources said that Alibaba was valuing the Indian firm in the range of $4-5 billion as against a valuation between $6-7 billion sought by Snapdeal.
The stake purchase in Snapdeal would have given Jack Ma-led Alibaba a stronger footing in the Indian market, which has one of the largest Internet population globally.
"Alibaba's talks with Snapdeal for acquiring a stake in the firm have broken down," a person in know of the developments said.
Alibaba has been expanding its presence in India, including through acquisitions.
Last month, Ant Financial Services -- part of the Alibaba Group -- said it will acquire 25% stake in One97 Communications, the parent of mobile commerce firm Paytm.
A US-based investment banker said while private equity and venture firms are "hugely" interested in investing in e-commerce in India, they are adopting a cautious approach as they feel valuations are being "pumped up" to "exorbitant" levels.
"While acquiring stake in Snapdeal would have been a good deal for Alibaba, the high valuation could have forced it to back off," said the banker, who did not wish to be named.
PE firms and angel investors are aggressively funding start ups and Internet-led businesses in India, targeting higher returns in the years to come.
Snapdeal has, so far, raised more than $1 billion, including Japanese telecom giant Softbank's $627 million (about Rs 3,762 crore) and former Tata Group Chairman Ratan Tata's personal investment last year.
Its larger rival Flipkart has also been receiving strong investor interest and had raised a $1 billion funding last year, which remains the largest to date in the fledgling Indian e-commerce sector.
Also, another global rival, Amazon has committed to invest $2 billion to bolster its business in India.
According to consultancy firm PwC, the e-commerce sector has grown by 34% (CAGR) since 2009 to touch $16.4 billion (about Rs 1,01,375 crore) in 2014 and is expected to touch $22 billion in 2015.
Whereas, research firm Technopak said the $2.3 billion e-tailing market in 2014 is expected to reach 3% of Indian retail ($32 billion) by 2020.