Japanese investments in India are poised for a boom

21 January 2021 Consultancy.asia 4 min. read

Japan and India’s economies are becoming increasingly intertwined – a trend that will likely be accelerated by Covid-19. Global professional services firm Nexdigm highlights the deal potential between the two markets.

The backdrop is a struggling Indian economy, which faced contraction in the immediate wake of the Covid-19 outbreak – putting several businesses in distress. Further East in Japan, investors have been on the lookout for opportunities in India for years, and will be enticed by the growing pool of distressed assets.

Feeding this interest is the fact that collaboration infrastructure between the two countries has already been laid out. “Japanese and Indian governments have spearheaded numerous initiatives such as manufacturing investment incentives and regulatory support, Japanese Industrial Townships, start-up initiatives, and several MoUs for sectoral and economic development,” explained Manoj Gidwani, a senior partner at Nexdigm.

Japanese M&A in IndiaDeal numbers from recent years reflect these efforts. More than 90 Japanese merger & acquisition (M&A) transactions were completed in India between 2015 and 2020 – averaging $45 million per deal and amounting to a total value of approximately $10 billion. 

As India enters a phase of economic recovery, funds at this scale will be in high demand, and Japan has the investment channels to fill this gap. Myriad opportunities exist across sectors. In recent years, the lion’s share of Japanese money in India has flown into materials such as steel, while a 2019 Nippon deal with Reliance Life Insurance secured nearly $648 million for the financial services sector as well.

Other sectors such as utilities and industrials have also drawn around half a billion dollars each of Japanese funds. According to Nexdigm, the Japan-India economic relationship is now on the verge of shifting gear, marked with highly versatile investment prospects. Front and centre is India’s vibrant startup ecosystem.

While steel reigned supreme in deal value recently, India’s information technology space saw the highest Japanese deal volume between 2015 and 2020. Behind these numbers are thousands of tech startups emerging in India every year, seeking interested backers.

In 2018, the two countries signed the Japan-India Startup Initiative – “a platform for promotion of information exchange, business collaboration and investments,” according to an official statement from Japan’s Ministry of Economy, Trade and Industry. The deal was complete with plans to launch a common startup hub in Bengaluru – commonly referred to as the Silicon Valley of India – that would act as an “interface between Japanese and Indian companies.”

With this in mind, Japanese backers could use the current climate to swoop in, as promising Indian tech startups face a financial strain. Then there is India’s healthcare sector, which “offers a huge opportunity for Japanese investors, especially in the areas of telemedicine and internet-based platforms” according to Gidwani. Similar transitions online for retail and education are opening all manner of doors for interested investors.

Investments in artificial intelligence (AI) could also be an attractive opportunity for Japanese investors per the report, as Indian businesses experiment with a range of Industry 4.0 technologies to boost their supply chain resilience. Combined, all these factors signal an imminent boom in deal activity between Japan and India.

Dealmaking collaboration

For Gidwani, it is important that both countries learn from past obstacles as they embark on this new chapter. “As M&A experts call for closer collaboration between Indian and Japanese businesses, they highlight that differences in cultures and communication styles have challenged the success of Indo-Japanese M&A deals.”

“These challenges often bring serious issues among the parties, sometimes becoming deal-breakers. It is often best that both counterparts communicate effectively, to arrive at decisions that balance their interests.”