Indian Internet Firms Defy Funding Squeeze With Resilient Demand
Despite a funding squeeze and fierce competition, Morgan Stanley predicts strong revenue growth for India's internet companies.
Despite a challenging financial climate and aggressive competition, Indian internet firms demand remains remarkably strong. According to a recent report by Morgan Stanley, these companies are positioned to deliver revenue growth that could surpass market expectations in the upcoming quarterly results.
The report suggests that the Indian internet ecosystem has shown significant resilience, holding its ground even as the industry grapples with macroeconomic pressures and rising interest rates.
Top-Line Surprises on the Horizon
Morgan Stanley believes there is substantial room for "top-line surprises," indicating that many companies may report better-than-anticipated revenue performance. However, the report notes a growing divide within the sector. While the overall market is resilient, there is a widening gap in performance among companies operating in the same segments.
Businesses that demonstrate superior execution are now attracting higher valuation premiums, meaning the market is increasingly rewarding efficiency and results over mere presence.
The Funding Crunch: A Growing Hurdle
While demand is steady, the flow of capital has slowed significantly. Funding remains one of the most critical challenges for the sector, with a noticeable decline in investment volumes.
- September Funding: Internet companies raised USD 299 million in September 2026.
- The Decline: This figure represents a 37 per cent drop from August and a steep 52 per cent decline compared to September 2025.
- Deal Volume: There were 35 funding deals in September, slightly lower than the 36 in August and 39 in September 2025.
Notably, the report highlighted a complete absence of large-scale deals during the month. Investment is now heavily concentrated in early- and mid-stage companies, with late-stage deals becoming increasingly rare.
Sector-Specific Investment Trends
In September, the most significant interest from investors was directed toward the e-commerce and health and fitness sectors. However, looking at the year-to-date data, the largest shares of investment interest have been captured by fintech, e-commerce, and enterprise technology.
Competition Reshaping the Landscape
The battle for market share is intensifying, with several key players shifting the dynamics of their respective industries:
- Quick Commerce: Blinkit continues to maintain its lead in terms of app downloads.
- Food Delivery: Toing is reportedly gaining traction in this highly competitive space.
- Home Services: Private competitors are narrowing the gap with Urban Company, as evidenced by daily and monthly active user data.
This competitive friction is reflected in the stock market as well. India’s internet index saw a 5 per cent dip over the month preceding the report, following a three-month period of gains. The volatility is particularly evident in the logistics, quick commerce, and food delivery sectors, where share prices are reacting sharply to earnings performance and shifting market expectations.
The Road Ahead
Morgan Stanley concludes that while the Indian internet market is resilient, long-term success is no longer guaranteed by growth alone. Sustained performance will now depend heavily on a company's ability to execute its strategy effectively while navigating limited access to capital and fierce rivalry. The ability to deliver earnings and capture market share will be the defining factors for the sector in the coming quarters.