Japan's growing yen for Indian assets

The appetite for Indian assets is growing among investors from the land of the samurai. An appreciating yen, combined with slow economic growth, has persuaded many Japanese investors to explore opportunities beyond their national boundary, and India appears to be one of their preferences.

In the past couple of years, Japanese investors have come here to form partnerships, acquire stakes and develop alliances with domestic companies to enter sectors like financial services, automobiles, information technology, metals and others.

Hiroaki Kato, president and chief executive of Daiwa Capital Markets in India, told Business Standard: "The appreciation in the yen has made foreign assets very attractive for investors. Also, the growth in their economy is muted, compared to India and China. India has a demographic advantage over China. The growing trade between India and Japan is also driving some of these investments."

In the insurance space, seven Japanese underwriters have partnered Indian companies. Two, Nippon Life and Mitsui Sumitomo, have entered the Indian market in the past 12 months by acquiring 26 per cent stake each in Indian insurance companies. Nippon Life acquired a similar stake in Reliance Capital Asset Management.

The largest life insurer in Asia, it made an aggregate investment of close to Rs 4,500 crore (Rs 45 billion) in the two transactions. These investments were the largest foreign direct investment

in insurance and asset management sectors in India. Industry sources say other insurers from Japan like Sumitomo Life also plan to enter this market.

And, earlier this calendar year, Japan's NTT Communications acquired a majority stake in Indian data centre service provider Netmagic for Rs 900 crore (Rs 9 billion). In December 2011, Mitsubishi Heavy Industries said it would sign a technological and licensing agreement with Larsen & Toubro's ship building arm.

In the steel sector, JFE Steel bought a 15 per cent stake in JSW Steel for Rs 4,800 crore (Rs 48 billion) in July 2010, while Kobe Steel and Steel Authority of India formed a collaboration in November 2010. Earlier that year, Denso set up a joint venture with Subros for designing car air-conditioning.

Sanjay Sakhuja, chief executive of Ambit Corporate Finance, said: "Japan today is characterised by an ageing population, slow growth rates, and near-zero interest rates. In contrast, India's demographics and long-term growth potential are a perfect hedge to its own macro situation. Initial successes in the auto industry have spurred subsequent interest in a range of sectors, including industrials, chemicals, telecom, financials, pharmaceuticals, logistics and metals. Japanese investors, with their long-term (and) non-intrusive approach make good partners for Indian business families."

In 2010, Japanese investors have invested 170-180 billion yen in India. Industry experts say the investment size is expected to increase in the coming years.