India’s e-commerce sector is set to witness the biggest consolidation with Flipkart buying majority stake in online fashion store Myntra.

The companies will officially announce a merger and acquisition deal, which will be a combination of both cash and stock, on Thursday, May 22, 2014.

When e27 contacted Flipkart and Myntra, officials did not confirm nor deny the development. However, Myntra has sent a press invitation for an announcement of a “strategic development” at the company tomorrow.

While the exact deal size could not be ascertained, a few reports have pegged it at INR 1,800 crore to INR 2,000 crore (approximately US$300 million to US$340 million).

This move will help the merged entity in building competitiveness against Amazon, a brand that has been aggressively expanding in the Indian market through new product offerings and heavy marketing push. However, Amazon is not the only competition as US-based Walmart is also planning to launch its online services soon. Another American e-commerce giant, eBay is already operating in India, and there are other strong players such as Snapdeal and Jabong that are capturing the pulse of the consumers through innovative offerings.

The India e-commerce space in terms of funding is actually sizzling at the moment. Just today e27 reported that Snapdeal has completed a new round of equity financing of US$100 million from TemasekBlackRock, Hong Kong-based MyriadPremji Invest and Tybourne. In February, it had raised another US$133.77 million in a funding round led by eBay.

Flipkart also received a  fresh funding of US$160 million, while Myntra raised US$50 million in a financing round led by Premji Invest in the first week of February.

Indian classified website Quikr secured US$90 million in a round by Swedish firm AB Kinnevik in March 2014, and Yatra raised US$23M with Singapore-based Vertex Venture as lead investor just last month.

Talks on the Flipkart–Myntra deal were first initiated in January 2014. e27 reported that Flipkart had proposed merger to arch rival Myntra.

Flipkart and Myntra are both based in Indian IT hub Bangalore and have common investors such as Tiger Global and Accel Partners.

Tiger and Accel together own 53 per cent shares, while IDG Ventures and Kalaari have a combined stake of 28 per cent in Myntra. Mukesh Bansal owns nine per cent, leaving the rest with other co-founders and staff. In Flipkart, the two common investors (Tiger and Accel) together hold around 40 per cent shares.

Flipkart and Myntra together will be a power house to reckon with. We cannot wait to see how competitors Jabong, Amazon, Snapdeal, eBay, Homeshop18 and Yebhi, among others, counter this.

There will be more competition and further consolidation in the Indian e-commerce space as the government is likely to allow foreign direct investment in e-commerce.