Japanese companies see India as a credible long-term partner for manufacturing as well as a top consumer market, Masahiro Goto, global head of investment banking at Nomura, told Swaraj Dhanjal in an interview. The Japanese firm is bullish on India as it’s one of the few economies offering scale and multi-decade growth prospects. Nomura regards India as a strategically important market in Asia and will continue to invest in expanding its franchise in the country, Goto said. Edited excerpts:
For the last two years, the global economy has seen rising interest rates, high inflation and multiple geopolitical tensions. How have these macroeconomic headwinds impacted deal making globally and in Asia?
We saw a great deal of M&A activity in 2021 before the conflict in Europe. However, after February 2022, activity slowed significantly because corporations were concerned about their own businesses in the face of rising interest rates and heightened macroeconomic uncertainty.
Similarly, global IPO activity has been muted in the past two years across regions. We’ve seen a few transactions, but the market is still in recovery mode.
One exception has been Japan. It has had strong momentum backed by favourable macro conditions. The equity capital market in Japan has been active. Japan-related M&A, including domestic transactions, is seeing momentum. Activity levels in the rest of Asia should also pick up as the region benefits from improving macroeconomic conditions and growth-enabling policy initiatives by governments.
Amid global challenges, how are public market investors and strategic investors looking at India?
India’s GDP is expected to grow at 6.5% and it is on track to become the world’s third-largest economy in the medium term. After the pandemic, India is being seen as a long-term partner in manufacturing and an appealing investment destination for global corporations. It is one of the few economies that offers a combination of scale and multi-decade growth, driven by growing domestic consumption and infrastructure spends. So the opportunity for overseas businesses for strategic cooperation with India is very appealing.
The Japanese stock market hit multi-decade highs this year. What’s driving the performance of the Japanese stock markets and its economy?
Japanese equities have had a strong showing in 2023 driven by three factors: the Japanese economy moving out of a deflationary environment; improvements in corporate governance; and Japan’s appeal as a target for investment diversification within Asia.
Japan’s economy is waking up after 3 decades of slumber due to two structural changes: a resurgence in expectations for end of deflation with the spring wage negotiations, and market pressure. Japan’s growth has been slow due to deflation, but with increase in prices and wages, Japan is expected to enter into a growth cycle. Market pressures have emerged this year that could prompt more efficient use of capital by companies. Reduced cross-shareholdings by banks, insurers and other companies in each other have also improved corporate governance.
Do you see the flow of Japanese capital into Indian stock markets growing substantially?
India offers long-term growth with structural stability, low volatility and sustainable macro factors to Japanese investors. Japanese retail investors continue to invest into India through MFs. We see increasing interest from institutional investors looking to tap into public and private markets in India.
Which sectors do you see attracting the most interest from global strategic investors?
India is seeing tailwinds on two major fronts, the first being the rise in domestic consumption and the second its emergence as a global manufacturing base. The optimism on these 2 fronts is translating into increased global interest. Consumption-driven sectors like auto, consumer durable goods, and healthcare are witnessing strong growth and attracting global investors. India has been building its capability in green energy and electric vehicles. Those are appealing sectors for global investors. The financial services industry is also witnessing significant investments driven by strong economic growth and under-penetration of financial services.
After Covid, several countries and companies have been looking to realign supply chains. In this context, how are Japanese firms, especially in manufacturing, looking at India?
India is attractive as a consumer market for Japanese companies to sell their products and also a manufacturing base. Japan and India have historically had very strong political and economic ties. That’s set to continue on top of continued investment from Japan as corporates globally look for newer destinations to expand their manufacturing bases into.
