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Flipkart has announced a $1.4bn capital injection from Tencent, eBay and Microsoft, with India’s largest ecommerce company accepting a reduced valuation in order to boost its firepower for an intensifying battle with Amazon.

The funding round valued Flipkart at $11.6bn, it said on Monday – significantly down from the $15bn valuation it enjoyed when it raised funds in September 2015.

Investor appetite towards the Indian tech sector has cooled since then, with ecommerce volume growth proving lower than suggested by some bullish analyst forecasts.

The announcement comes as Flipkart is locked in talks with Japan’s Softbank, the major backer of Flipkart’s struggling rival Snapdeal, over a merger of the two companies. This deal would value Snapdeal at $1bn, according to two people close to the talks – down from its peak valuation of $7bn.

EBay’s equity stake in Flipkart will come partly in exchange for its Indian business, which will be folded into Flipkart while continuing to operate as a separate entity.

Flipkart said Tencent would become a “strategic partner”, with the Chinese group’s president Martin Lau saying the deal would enable it “to participate in the exciting opportunities in ecommerce and payments in India”.

Tencent’s investment in Flipkart comes weeks after its rival Alibaba upped its bet on Paytm, an Indian payments and ecommerce group. Alibaba and its affiliate Ant Financial invested a total of more than $420m in Paytm and its ecommerce unit, taking their total investment to more than $1bn.

Amazon, meanwhile, last year pledged $3bn of capital to its Indian unit, adding to the $2bn it had previously earmarked.

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