The Indian Economy Blog

September 11, 2005

Japanese Investment In India — Fast Rising

Filed under: Business,Capital markets — Prashant @ 11:13 am

Brahma Chellaney writes in the Wall Street Journal(subscription required)

China is driving Japan and India closer together. Tokyo, as if to make up for decades of neglect, is enthusiastically recognizing India’s potential as an investment destination and strategic partner. Reversing a long-standing pattern, Tokyo now provides more development loans to India than to China.

Japan’s increased interest in India has much to do with China’s anti-Japanese protests last spring, which reminded Japanese businesses of the risks they face in China. The protests have psychologically rattled Japanese portfolio investors in particular.

To help hedge their risks, Japanese institutional investors have begun to plough funds into the Indian stock markets in a major way. Such has been the inflow of Japanese funds that the Bombay Stock Exchange benchmark index has reached new highs almost every week in the past four-and-a-half months, raising concern over a foreign-funded bubble in Indian equities. In the period since after the anti-Japanese street protests in China in April, the benchmark index has risen more than 25%, making it Asia’s best performer, as Japanese funds seriously look to India as an alternative to China.

[..]

Not only has new Japanese buying of Chinese stocks slowed, India has also emerged as Japan’s new investment pick. This is evident from the array of new India retail funds in Japan, which by the end of July were worth 445.3 billion yen ($4.05 billion). In fact, the Nomura Asset Management Co. Ltd. in Tokyo had to close its India fund just a day after its launch on June 22 because it collected more money than it could invest without artificially shooting up Indian stock prices. Such has been the growth in Japanese investment in India that much of the $1.9 billion foreign institutional investment inflow in July came from Japan alone, according to India’s Financial Express newspaper.

Chellaney thinks this increased investment may well be the harbinger of closer ties between India and Japan, Asia’s two largest democracies.

Clearly, China’s loss has been India’s gain. In the coming years, India is likely to increasingly benefit from closer ties with Japan, which many forget remains the world’s second largest economy, far ahead of China. Japan alone represents 60% of Asia’s GDP today. In addition, Japan, a high defense spender maintaining Asia’s most powerful navy, could very well eventually reemerge as a “normal,” or even a great, military power.

An India-Japan strategic partnership, involving naval cooperation to protect vital sea-lanes of communications, will help shift the balance-of-power equation in Asia. Given the current Japanese reassessment of China, India should aggressively woo Japanese businesses to move some of their investments to its secure location. India needs Japanese technology and investment to accelerate its current 7% GDP growth rate.

A Wall Street Journal editorial chips in

New Delhi-based economist Bibek Debroy tells us that FDI inflows from Japan have increased sharply, to $122 million in 2004-2005 from $67 million in the preceding year. We appreciate that these numbers are still small by international standards, but what’s important here is the growth over the last year. Interestingly, 2003-2004 experienced hardly any growth over 2002-2003, which saw inflows of $66 million.

And Dilip Gadkar, a hedge fund advisor to Greylock Capital Management in New York, tells us that during the first six months of 2005, Japan emerged as the largest investor in the Indian equity market with investment of over $1.5 billion. In contrast, from 1991-2004, the extent of Japanese investment in India was $1.79 billion.

All good stuff. However, it behooves the Indians to be pragmatic. The Kingdom of the Rising Sun’s new-found love for India is driven by Japan’s own interests -ie, safer and better investment alternatives, and India represents such an opportunity. While India should do all it can to capitalize on this window, there’s no reason to accept this sort of condescending nonsense.

5 Comments »

  1. It’s bad that we’re gaining from China’s loss BUT its’ good for INDIA I’m happy!

    Comment by Dr. Prahalathan KK — September 13, 2005 @ 2:16 pm

  2. India is the new rising star and given the limelight, and the real economic growth promise behind it, its natural to find all kind of investors, so we India should just count Japan as one of them.

    –Lakshmi

    Moomli – My Only One Moment to Liberate India
    http://www.moomli.com

    Comment by Lakshmi — September 15, 2005 @ 2:22 pm

  3. Well why shouldnt it have an impact on FDI ?
    The Japanese Ambassador is right in pointing this out.
    Police brutality as well as workers acting as hooligans(setting police vehicle on fire, and aswell as damaging public property) both HAVE already had impact on the perception of India.
    If you are considering investing in a labor intensive operation in India, you will have to factor these risks.
    Its inspite of all this shit there is money being invested in India.
    Lets not blow our own horn and not overlook the serious lack of infrastructure and professional attitude and civility in India as shown by both police and the workers.

    Comment by GGK — September 22, 2005 @ 1:16 am

  4. Morgan Stanley in a report 2004 says India has alot of catching up to do with China. We are 13 years behind them!!

    “In 1982, China’s GDP per person was $275, marginally lower than India’s $280, according to the Morgan Stanley report. But by 2003, China had jumped to $1,086, twice that of India.”

    Its great to see Japanese investments as well. I think it is these foriegn investments that are going to really help boost the economy in the near future and make us into a roaring tiger.

    Reference:India and China: Rivals or fellow ‘tigers’?
    By Marianne Bray CNN
    Friday, September 16, 2005
    http://edition.cnn.com/2005/WORLD/asiapcf/09/14/india.eye.china/index.html

    Comment by Mani Pulimood — September 22, 2005 @ 8:38 am

  5. I have started a blog on Indian equities:
    http://indianequities.blogspot.com

    Comment by Raj Jain — October 12, 2005 @ 10:21 am

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