)
Debt instruments with high interest rates, favourable currency movements have attracted investors from that country
A number of Indian asset management companies (AMCs) are looking to tap Japanese investors for fund flows, on the back of lower interest rates in the country and favourable currency movements.
Suyash Choudhary, head, fixed income, IDFC Mutual Fund, stated there was some appetite on the debt side. "We are in talks with investors…what we have picked up from Japanese financial institutions is that there is a strong interest in India on account of the low interest rate scenario prevailing in Japan. The depreciation of the yen is also a positive," he said. He declined to comment on specific fund raising plans.
N Sethuram Iyer, chief executive officer at Daiwa Asset Management (India), said there was more appetite for Indian debt than for Indian equity. "The Japanese markets are doing pretty well themselves, so Indian equity might not be as popular as Indian debt," he said.
Bhupinder Sethi, head-equities at Tata AMC, stated there was some money coming into emerging market debt. "Emerging market bond yields have hit record lows because of Japanese flows…money is only likely to come into Indian equities after the current cycle in other assets have played out," he said.
Interest rates in India stand out as among the highest in the region, according to market watchers. There are two ways in which the Indian market could be tapped. One is via a feeder fund into a local debt scheme. The other would be the foreign institutional route, whereby an offshore fund buys into Indian debt.
Some foreign-sponsored AMCs, as also local fund houses which have built up offshore fund capability, are said to be tapping the route.
Recently, a number of mutual funds filed offer documents with the Securities and Exchange Board of India for debt schemes which allow for investment by foreign investors. Some of these include the Religare Corporate Bond Opportunities Fund, HDFC Corporate Debt Opportunities Fund, Tata Fixed Maturity Plan and the IDFC Fixed Term Plan. At least three of these houses have been in talks with Japanese investors, say sector sources.
The recent relaxation of foreign institutional investor (FII) limits on investment in Indian debt is another positive. The government recently announced it would remove the sub-limits within which FIIs were allowed to buy into Indian debt.
There would now be limits for only two broad categories - government securities and corporate bonds. Under the existing norms, there is a ceiling of $1 billion for qualified foreign investors and $25 bn for FIIs in corporate bonds, besides $25 bn for FIIs in long-term infra bonds. All of these would now be merged, retaining the overall cap for corporate bonds at $51 bn.
Also, currently FIIs can invest in government securities up to $10 bn and dated securities of an additional $15 bn. These sub-limits would be merged to retain the overall cap of $25 bn.
The yen has depreciated 13.3 per cent against the rupee since the beginning of the calendar year. While one yen fetched 63 paise on January 1, this has now come down to 55p. A falling yen (or an appreciating rupee) is a positive for foreign investors putting their money into India, as it adds to their returns.
