Japan Investment Surge: Beyond FDI into India, Says Sikka

Sandeep Sikka, MD & CEO of Nippon Life India Asset Management Company, anticipates a significant increase in Japanese investments in India, shifting beyond Foreign Direct Investment (FDI) towards greater portfolio flows and retail participation. He highlights India’s unique strengths in scale, talent, and growth, which perfectly complement Japan’s substantial capital and technology.

Evolving Investment Dialogue

Sikka, who recently accompanied a business delegation to Japan, observed that positive political relations are now translating into robust business ties. Japanese investors’ discussions have evolved from questioning the rationale of investing in India to strategizing on increasing their capital deployment.

• There is a growing interest in ‘making in India for the world’, not solely for the domestic market.
• Nippon Life India Asset Management has experienced smooth dividend repatriation, countering concerns about profit repatriation.
• India offers significant political and policy certainty, particularly under its current leadership.

Untapped Potential in Japanese Savings

Japan possesses an enormous savings pool, much of which remains uninvested internationally. This represents a substantial opportunity for India to attract further capital.

• Japan’s total savings pool stands at $14 trillion.
• Approximately half of this capital is held in bank accounts.
• Only about 1% of Japan’s $2.2 trillion asset management money is currently invested overseas in India.

Initiatives like NISA from the Japanese government are designed to promote overseas investment, with Nippon having already launched a scheme to facilitate these flows. India, as the world’s fastest-growing economy, offers attractive returns that appeal to these investors.

Shifting Investment Patterns

The typical investment progression begins with Foreign Direct Investment (FDI), followed by Foreign Portfolio Investment (FPI), and eventually, retail investments. Recent data indicates a positive trajectory for India-focused funds in Japan.

• Assets Under Management (AUM) for India-focused funds in Japan grew from $6.7 billion in 2016.
• This AUM is projected to reach $19.6 billion by 2026.

Furthermore, FPI inflows into India have turned positive after a period of outflows, and the rupee has stabilized, signaling an improving economic environment. Indian mutual fund investors have also demonstrated resilience, continuing to invest via SIPs and lump sums even amid market volatility.

Impact of Consolidated Account Statements

The implementation of Consolidated Account Statements (CAS) is seen as a beneficial development for the market. This mechanism enhances transparency and supports mutual funds in achieving better price discovery.

Ultimately, CAS is expected to benefit Net Asset Value (NAV) and reduce tracking errors, particularly within passive funds. These systemic improvements further strengthen India’s appeal as an investment destination for international capital.