While the funds from these two countries are focusing on the same market, their regional interest rate situations are different, which presents an interesting contrast.
For instance, interest rates in the US are widely believed to have peaked with an expectation of two interest rate cuts this year. On the other hand, the Bank of Japan increased the interest rate in March – the first time in 17 years.
This suggests that the prospects of earnings growth in Asia’s third-largest economy are gaining prominence for investors over the interest rate arbitrage between developed nations and India, which is gradually losing its appeal as an investment rationale.
The equity AUM of US-based funds reached a record ₹30.2 lakh crore ($361 billion), equivalent to 70% of the total equity value of India’s domestic mutual funds. For Japanese funds, the assets under management (AUM) rose by 70% to ₹2.1 lakh crore ($25 billion) in June, one of the highest jumps among major countries. Overall, FPI equity AUM grew by 39% year-on-year to ₹71.4 lakh crore ($856 billion), accounting for nearly 17% of India’s total market capitalisation.
Among the largest Japanese investors are government pension funds, which hold stakes in key Indian companies such as Reliance Industries, Bharti Airtel, Larsen & Toubro, and TCS.
Japanese government pension funds are invested in 162 Indian companies, comprising 1.8% of the total foreign equity holdings of $378 billion.
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