It seems India’s biggest e-commerce firms are finally being punished for their ruthless disregard for profits.

Since inception about a decade ago, Snapdeal and Flipkart have almost solely focused on two things: attracting more consumers and increasing the total value of goods sold on their platforms. To do this, these online retailers have been on a discounting spree—often subsidising buyers from their own pockets. But while this approach has got them the eyeballs, they are still far from breaking even.

Some rather unflattering internal developments—from shaky leadership to over-hiring—have also attracted negative publicity for the two homegrown companies in 2016.

Investors are finally asking tough questions.

The two stars

Formidable Flipkart: The Bengaluru-based online marketplace has established itself as the largest home-grown player in the Indian e-commerce space, with a reported gross merchandise value (GMV, or the total value of goods sold) of $10 billion.

Flipkart is one of the most funded technology startups in India, having raised a total of $3.15 billion, according to CrunchBase, a startup database platform. In the ninth year of business, Flipkart now has over 46 million registered users, 33,000 employees, 14 warehouses, and gets 10 million daily page visits.

But the company—co-founded in 2007 by friends Sachin Bansal and Binny Bansal—has lately witnessed several negative developments.

Earlier this month, investor Morgan Stanley delivered a major blow to Flipkart when it trimmed the company’s valuation by $4 billion.

“There will be reverberations in the ecosystem. A big stone has fallen in the pond,” Rehan Yar Khan, general partner at Mumbai-based venture capital (VC) firm Orios Venture Partners, told The Wall Street Journal.

The American financial services firm, which owns 1-2% stake in Flipkart, now values the online retailer at $11 billion, and not $15 billion as it did in June 2015. This means its value has fallen to $103.97 per share from $142.24 in June 2015 and $117.96 in December 2014.

Flipkart is backed by some of the biggest global VCs, including Tiger Global, DST Global, Naspers, and Accel Partners. But if the company was to raise funds anytime soon, it may be forced to go for a down round, where investors purchase stocks at a lower valuation than the earlier investment round.

And valuation is not the only problem Flipkart is facing.

In January this year, Flipkart announced a leadership restructuring with Binny replacing Sachin as CEO. Barely a month after that, it announced the resignation of a key senior leader, Mukesh Bansal—once rumoured to be the next CEO. Another senior leader, Punit Soni, is rumoured to be on his way out. Soni came to Flipkart from Google last year, but was not given a defined role following management changes in January.

Flipkart has also been struggling for a clear strategy. The company earlier shut its mobile website, adapting an app-only approach. But later it went back on its decision. Media reports have also said that Flipkart had firmed up a plan to shut its website altogether, and be available only through a mobile app. This was a strategy that Flipkart’s subsidiary, Myntra, had opted for in May 2015 and abandoned in December.

For now, Flipkart is available across all channels.

The company did not respond to an email from Quartz seeking reasons for changes in strategy, rumours of Soni’s exit, and reaction to the devaluation.

Snapdeal’s story: India’s second largest homegrown e-commerce company (by GMV) seems to be lagging in the race.

Source-based media reports in early 2015 had said that Snapdeal was looking to dethrone Flipkart and become the country’s largest online retailer by December last year. In August 2015, co-founder and CEO Kunal Bahl went on record to say that Snapdeal was on course to overtake Flipkart. ”The one thing I am very, very clear about right now is that I think we’re going to be number one (in terms of sales) by March 2016,” Bahl told The Economic Times in an interview in August.

At the time, Snapdeal had achieved a GMV of $4 billion. But in February this year—just a month before Bahl’s March deadline—the company reportedly had a GMV of $7 billion, way behind Flipkart’s $10 billion. Despite Flipkart’s devaluation, Snapdeal trails it on that metric by a big margin. In its latest funding round in February, Snapdeal was reportedly valued at $6.5 billion.

And now, the company appears to have shifted its benchmark for success from sales to the number of users. It is hoping to host 20 million daily transacting users by 2020, Snapdeal told Quartz in an email.

“What will matter for long-term value creation is the number of users transacting daily on our platforms. We already have more than one million users transacting across our platforms daily, which is more than both Flipkart and Amazon’s (India) put together,” a Snapdeal spokesperson said.

But, Snapdeal is lagging when it comes to wooing shoppers on mobile apps. Flipkart and Amazon appeared in a list of 15 most-installed mobile apps in India, in a recent report by Boston-based mobile internet company, Jana. Snapdeal did not make it.

If struggle with growth was not enough, the company recently ran into trouble with its employees.

Last month, Snapdeal’s call center employees launched protests alleging that the company was looking to outsource work and cut jobs. The company reportedly put 200 of its employees on a 30-day performance improvement plan. If they did not show marked improvement during this time, they would be let go.

Even as television channels played videos of hundreds of employees shouting slogans against the company at its office gate in Gurgaon near Delhi, Snapdeal denied rumours of job cuts.

“There have been no layoffs at Snapdeal,” the company told Quartz in a statement. “As part of our performance management and development programme, some team members were offered a performance improvement plan.”

Turning tide?

These developments at Flipkart and Snapdeal will have repercussions on the entire e-commerce sector in India.

Major players are already finding it hard to raise money from VCs. “It was not easy to raise funds this time,” Sanjay Sethi, CEO of India’s latest unicorn, ShopClues, told Quartz in January. “You can get money but getting it at the right value is tough because the sentiment of Indian e-commerce is slightly negative right now.”

“Large companies that have already reached a certain scale are not making profits and don’t have a clear path to profitability, which is leading to some skepticism in the market,” he added.

According to a recent survey, investor interest in e-commerce is waning. As many as 46% of the participants in the study conducted by news publisher VCCircle indicated their interest in investing in startups in the consumer service space. But only 23% showed interest in e-commerce. Over the last few years, e-commerce startups have received the largest pie of VC investments in Asia’s third-largest economy.

In The Golden Tap: The Inside Story of Hyper Funded Indian Startups, a book about India’s startup landscape, serial entrepreneur Kashyap Deorah wrote:

Global funds have their genesis in stock market trading. When a bet goes wrong, they cut their losses and run. And never look back. A 5-10% bet can be rationalised as an insurance plan against the regret of missing out on the next China, especially when China has delivered unexpected gains that broke the charts. If the bet starts looking wrong due to lack of liquidity or lack of value, the hedge funds would be the first to look away and move to greener pastures. It has happened before and it will happen now.

Deorah believes this is exactly what’s happening in India. “Tiger (Global) suddenly went quiet after the August 2015 market meltdown in China, followed by the US. Softbank’s $100 million checks are much harder to come by. Rocket (Internet) has been trying to cut its losses in Jabong and Foodpanda, and is in exit mode. DST (Global) and Naspers have been lesser active as well,” he told Quartz over email.

But this bursting of the valuation bubble might just be what the doctor ordered for India’s e-commerce sector.

“Doing business in that space had become territorial warfare with funding being the biggest weapon,” Deorah said. “The fake economics created by the e-commerce unicorns had created some bad habits in the ecosystem. Those will go away now and we can start building a more sustainable ecosystem.”