In the short term, Indian customers will be the winners.

Walmart’s $16 billion acquisition of Flipkart will feed bad behaviour for start-ups all over India, which will go for more growth and pay little attention towards profitability or building viable businesses, Aswath Damodaran, professor of corporate finance and valuation at Stern School of Business at New York University, said in a blog post.

“For start-ups all over India, though, I am afraid that this deal, which rewards the founders of Flipkart and its VC (venture capital) investors for building a money-losing, cash-burning machine, will feed bad behaviour,” he said.

“Young companies will go for growth, and still more growth, paying little attention to pathways to profitability or building viable businesses, hoping to be Flipkarted. Venture capitalists will play more pricing games, paying prices for these money losers that have no basis in fundamentals, but justifying them by arguing that they will be Walmarted. In the meantime, if you are an investor who cares about value, I would suggest that you buy some popcorn, and enjoy the entertainment. It will be fun, while it lasts!,” Mr. Damodaran said.

He also noted that Flipkart and Walmart shared a common adversary, Amazon, a competitor masterful at playing the long game. The deal was born out of fear of Amazon, he added.

There was little chance that Flipkart, standing alone, could survive this fight, as capital dried up and existing investors looked for exits, he said. Walmart’s slide into decline in global retailing seemed inexorable as Amazon continued its rise, Mr. Damodaran noted.

“Put differently, Walmart’s justification for investing in Flipkart is not that they expect to generate a reasonable return on their $16 billion investment but that if they do not make this acquisition, Amazon will be unchecked and that their decline will be more precipitous,” he added..

Mr. Damodaran said defensive mergers were a sign of weakness and not strength and indication of business model under stress.

“If you are a Walmart shareholder, this is a negative signal and it does not surprise me that Walmart shares have declined in the aftermath. Staying with the life cycle analogy, Walmart is an aging, once-beautiful actress that has paid $16 billion for a very expensive face-lift, and like all face-lifts, it is only a matter of time before gravity works its magic again,” he said.

“In the short-term, I expect this acquisition to accelerate the already frenetic competition in the Indian retail market, with Flipkart, now backed by Walmart cash, and Amazon India continuing to cut prices and offering supplementary services. That will mean even bigger losses at both firms, and smaller online retailers will fall to the wayside. The winners, though, will be Indian retail customers who, in the words of the Godfather, will be made offers that they cannot refuse!”, Mr. Damodaran said in his blog post.