Alibaba Group, the prominent Chinese e-commerce giant, has decided to halt its plans for investing in Indian companies due to strained business relations and increasing political tensions between the two countries, according to sources familiar with the matter. The decision comes after a clash on the Himalayan border between India and China. Although Alibaba will not be making any new investments in India for at least six months, it has no intentions of reducing its stakes or exiting from its existing investments. The sources, who requested anonymity, emphasized that the discussions were held privately.

Alibaba, along with its affiliates Alibaba Capital Partners and Ant Group, has invested more than $2 billion in Indian companies since 2015. Additionally, it has participated in funding rounds worth at least $1.8 billion, as reported by PitchBook data. The suspension of these investments could potentially slow down the fundraising plans of Indian start-ups such as Paytm, Zomato, and BigBasket, which have received support from Alibaba.

Ant Group, currently preparing for an Initial Public Offering (IPO), has acknowledged the challenges it faces in India. In its IPO filing, the company mentioned that changes in foreign investment regulations in India have led to a reevaluation of the timing of its additional investment in Zomato. Ant Group also views One97 Communications, the owner of Paytm, as an associate or joint venture partner in which it retains “significant influence” due to its 30% stake in the company.

Since April, India has tightened its scrutiny of investments from China and neighboring countries to prevent opportunistic takeovers amid the COVID-19 pandemic. Tensions between India and China further escalated in June following a border clash that resulted in the deaths of 20 Indian soldiers. Subsequently, India imposed stricter restrictions on Chinese goods and businesses, and calls for boycotting Chinese products gained momentum.

According to one of the sources, “Alibaba and a few others have put their India investment plans on hold for six months, and they are hoping that things would cool off a bit after that.” The source also emphasized that no one intends to sell their stakes in Indian ventures due to the prevailing market conditions and the lack of potential buyers.

Indian start-ups heavily rely on funding from Chinese investors like Alibaba and Tencent. However, with the pause in Chinese investments, there is now significant interest from European and U.S.-based investors to fill the gap, according to Arjun Sinha, a partner at the Indian law firm AP & Partners. Although deal-making may take longer as new relationships need to be established, Sinha remains optimistic about the continued investment potential in Indian start-ups.

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