BENGALURU: Morgan Stanley ’s steep markdown of Flipkart ’s stock threatens to put a dampener not only on the online retailer’s latest fundraising but also on India’s entire ecommerce market.A potential reset in the valuation of Flipkart, India’s startup poster boy, is likely to accelerate an anticipated correction in the valuations of internet companies, according to several investors. Venture capital firms and hedge funds slammed on the brakes too late last year after a surge of investments heated up the valuations of Indian ecommerce companies despite dim visibility on profits.Morgan Stanley Institutional Fund Trust’s 27% markdown of its stake in Flipkart was part of a broader rout in its valuations of global technology and internet companies. The fund also slashed the value of its equity holdings in file-sharing company Dropbox and data analysis company Palantir Technologies.The reported valuations of Indian billion-dollar startups, or Unicorns, “mean nothing till (the firms) are seriously marked in the public market or (by) a true public market investor or a top private equity investor in the last 12 months,” said Neeraj Bhargava, managing director at investment firm Zodius Capital.“In reality, almost (every internet company) needs to be marked down… mostly heavily marked down by 25-75%,” said Bhargava, also the cofounder of NYSE-listed business process outsourcing firm WNS.India’s once-exclusive Unicorn club opened its doors wider last year, handing out memberships to five more companies including taxi aggregator Ola and online wallet and marketplace Paytm amidcriticism that the valuations were more likely to be exaggerated and the business models unsustainable without raising funds from investors. Before 2015, only four Indian companies had acquired that tag. Increasingly, the challenge for these so-called Unicorns lies in defending their valuations.The Morgan Stanley fund in a regulatory filing on Friday pegged the value of Flipkart’s shares at $103.97 apiece as at December, down from $142.24 apiece as at June. At that price, Flipkart’s valuation would plunge to its December 2014 level of about $11 billion (about Rs 75,680 crore at current exchange rates ). As recently as last week, Flipkart had said in a media statement that the company was valued at $15.2 billion (or about Rs 1.05 lakh crore). Fidelity Strategic Advisors Growth and Valic Co, which also own Flipkart shares, too, have marked down their holdings in the company by 27% and 13%, respectively. T Rowe Price, which first invested in the electronic marketplace in December 2014, maintained its valuation of Flipkart’s stock price as on December 31 at the $15.2-billion level, its regulatory filings show.Although Flipkart will remain India’s most valuable internet company even after the markdowns, the development will likely force the company on itsback foot in its ongoing negotiations with investors to raise about $1.4 billion at its present valuation. Flipkart needs to shore up capital to maintain its top market share in India against the US-based Amazon and domestic rival Snapdeal.Morgan Stanley’s decision “makes it tougher for (Flipkart) to raise money at the same or higher valuation,” said an investment banker on condition of anonymity.The Wall Street giant’s markdown of Flipkart’s stock price is also reflective of the uncertainty among investors about whether the online retailer will be able to keep its lead against an increasingly aggressive Amazon, which has pumped in Rs 3,676 crore (nearly $540 million) into its India operations since December.Investors and entrepreneurs have been predicting that Flipkart would have to contend with a lower valuation in its latest fundraising, a chatter that gathered steam especially after recent changes in the company’s top management. Flipkart, though, is unlikely to bite the bullet so quickly, as industry estimates suggest that the company has enough cash in the bank to sustain operations for about 18 months and can afford to delay raising capital.A markdown is different from a so-called ‘down round’, in which a company agrees to raise money at a lower valuation.A Flipkart spokesperson declined to comment.Vijay Shekhar Sharma, chief executive of online marketplace Paytm, said Flipkart’s valuation will be determined by its position in the Indian ecommerce market and its performance, not by a fund’s internal mark-to-market calculation.“Public market funds keep marking investments up and down based on their own internal benchmarks, which doesn’t mean that is a company’s actual valuation,” Sharma said.That said, the valuations of Chinese ecommerce giants Alibaba Group and JD.com, have plummeted by more than 40% since their highs achieved in May-June, which was a few weeks before Flipkart raised money at a $15.2-billion valuation. Experts fear the drop in the share prices of the Chinese companies will likely impact Indian online retailers modelled after them.To be sure, in February, Morgan Stanley forecast that the gross merchandise value of Indian online retailers would increase to $119 billion by 2020 from its earlier estimate of $102 billion. That investor-favourite metric, however, is highly disputed as a marker for valuations as it refers to the maximum price of goods sold on an internet marketplace without factoring in discounts and product returns, and not the actual commissions these firms charge on transactions.“In the long run, what is the sustainable advantage that Indian players like Snapdeal and Flipkart (have)?,” said the unnamed banker mentioned earlier. “They need to answer these questions rather defending their valuations.”