Japanese have a yen for Indian equities

India-dedicated funds have raised around $1 billion in Japan over the last one month, indicating a huge appetite for Indian equities in that market.

Mutual fund industry sources said four entities, Jardine Flemming, Fidelity, Prudential and Deutsche, have mopped up around $1 billion in India-dedicated funds in January alone. The money is being invested in the Indian markets.

In addition to India-dedicated funds, a few Japanese funds, including the Tokyo-based Nomura, have started collecting subscriptions to invest in Indian stocks, sources said.

"This has never happened before. The Indian market is a reality now and no one wants to miss it. Traditionally, there has been very limited funds flow from Japan," said a senior executive with a foreign brokerage.

Local fund managers cited a weaker dollar and attractive valuations of Indian stocks as the twin reasons from Japanese money flow into Indian markets.

Jardine Flemming and Fidelity have together raised around $750 million in Japan to be deployed in India. Prudential and Deutche Asset Management have raised $150 million and $70 million, respectively.

"More and more India-dedicated funds are being raised in Japan. We expect the quantum could run into a few billion dollars in 2005," sources added.

The Middle East is also emerging as a new source of funds as the US-bound funds are being diverted to the Indian market now.

Zafar Sareshwala, director of Parsoli, a brokerage engaged in managing funds from the Muslim world told Business Standard, "There is enormous possibility in India. We have started in a modest way. Our expectation is the flow of money will be higher in the coming years."

In calendar 2004, India-dedicated funds attracted $1.7 billion, while Taiwan and China funds mopped up $1.5 billion. Going by the trend, this year mop-up by India funds globally could at least be doubled, fund managers said.

A recent report by the Washington-based Institute of International Finance said Asia was expected to maintain its dominant position by attracting nearly 60 per cent of net equity flows to emerging markets in 2005.

However, the Asia-Pacific's portfolio flows are expected to fall back slightly from $31 billion last year to about $30 billion this year.

"Nearly all the reduction will take place in India and South Korea," the report said. It is an argument that brokerages in India do not buy.

"More and more new funds are entering the market. The flow will continue even if the US rates rise and the dollar strengthens. Everybody wants to have a piece of Indian paper," said a fund manager.