Japan's growing yen for Indian assets

Investors find alliances with domestic companies attractive across sectors

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.”
 

THE SAMURAI SWEEP

FINANCIAL SERVICES

• Rs 3,000 crore was paid by Nippon Life for a 26% stake in Reliance Life in May 2011
• Rs 2,731 crore is what Mitsui Sumitomo paid for a 26% stake in Max New York Life in March 2012
• Rs 1,450 crore was paid by Nippon Life for a 26% stake in Reliance Capital Asset Management in January 2012

INFORMATION TECHNOLOGY

• Rs 900 crore was paid by NTT Communications for acquiring majority stake in Netmagic in January 2012

AUTOMOBILES

• Denso had set up a joint venture with Subros for designing air-conditioning for cars in June 2010

SHIPBUILDING

• Mitsubishi Heavy Industries announced technological and licencing agreement with Larsen & Toubro’s shipbuilding arm

STEEL

• Rs 4,800 crore was shelled out by JFE Steel for buying a 15% stake in JSW Steel in July 2010
• Kobe Steel and Steel Authority of India Limited formed a strategic collaboration in November 2010
• Rs 2,400 crore was what Nippon Steel agreed to invest in Tata Steel for producing steel for the auto industry in January 2011

INDUSTRIALS

• Hitachi set up a joint venture with BGR Energy System in August 2010
• $200 million is what Softbank invested in InMobi in September 2011

OTHERS

• Kokuyo bought stake in Camlin in May 2011

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 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. 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 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.