Many discussions about the war between Amazon (AMZN -0.17%) and Walmart (WMT 0.83%) focus on the U.S. market, where both retail giants are trying to lock in customers with free and same-day delivery options. However, investors should also pay close attention to India, where the two companies dominate the e-commerce industry.

Amazon and Walmart's Flipkart are currently the two largest e-commerce marketplaces in India. Morgan Stanley expects over half of India's internet users to buy products online by 2026, compared to just 14% in 2016, as income levels and internet penetration rates rise. The country's entire e-commerce market could grow from $38.5 billion in 2017 to $200 billion by 2026, according to the state-funded India Brand Equity Foundation.

An Indian family celebrates Diwali.

Image source: Getty Images.

That's why Amazon and Walmart both recently launched massive competing shopping events for Diwali, India's "festival of lights," from Sept. 29 to Oct. 4. Amazon's shopping holiday is called the "Great Indian Festival," while Flipkart's is dubbed "The Big Billion Days."

Diwali is India's Black Friday

Consumer demand during these events -- which are comparable to Black Friday in the U.S. and Singles Day in China -- runs so high that Amazon and Flipkart hired a combined 140,000 temporary workers to ensure that their operations run smoothly.

Forrester Research expects Indian shoppers to spend $4.8 billion between Sept. 27 and Oct. 29, with the week of Diwali accounting for 80% of that total. Competition for those dollars will be fierce since new regulations restrict both Amazon and Flipkart from selling exclusive products.

Amazon and Flipkart are reportedly offering discounts of 10%-80% on their products, according to the South China Morning Post, as well as cashback offers and payment installment plans. This indicates that both retailers are adopting aggressive loss-leading strategies to gain more shoppers.

Amazon India claims that it already signed up the highest number of new Prime members ever on the first day of this year's Great Indian Festival, which complements its recent push into malls with over 100 kiosks that sell its hardware devices. Flipkart claims that it expanded operations in "hundreds" of new towns and cities ahead of Big Billion Days.

What India means to Amazon

Amazon is expanding into higher growth countries like India to offset its slower growth in developed markets like the U.S., Germany, the U.K., and Japan. Those four top markets generated nearly 90% of Amazon's revenue last year.

Amazon tried to expand in China, but it never gained much ground against market leaders like Alibaba and Its gaze then turned toward India, where it set aside billions of dollars for investments in the country's joint ventures, logistics network, and localized digital content.

Boxes in a warehouse.

Image source: Getty Images.

Amazon's revenue in India still isn't significant enough to disclose separately in its SEC filings, but it constantly discusses its progress in the country. During last quarter's conference call, senior VP and CFO Brian T. Olsavsky stated Amazon continues to "see growth" in both sellers and delivery partners, and that it "doubled" its number of paid Prime members in the country.

What India means to Walmart

Walmart only had a tiny presence in India with a few brick-and-mortar Best Price stores prior to its takeover of Flipkart, but the $16 billion deal immediately turned it into one of the country's top e-tailers.

Walmart is diversifying into India for three reasons: to reduce its dependence on the slower-growth U.S. market, which generated nearly two-thirds of its revenue last year; to prevent Amazon from dominating one of the world's highest-growth retail markets; and to bolster its digital capabilities.

Walmart currently operates 25 Best Price wholesale stores and two fulfillment centers in India. In late 2018, it stated that it plans to spend about $500 million to increase its Best Price store count to 70 by 2022, which would expand the reach of Flipkart's online deliveries and in-store pickups.

So which company will gain more shoppers this Diwali?

It's far too early to declare a winner in the escalating battle between Amazon and Flipkart as their shopping festivals rage on. But investors should still pay close attention to both companies' upcoming earnings reports and conference calls for hints of their progress. Whichever company pulls ahead could eventually emerge as the market leader in India -- which is expected to overtake China as the world's most populous country within the next decade.