Top Japanese conglomerates and investment firms are ploughing money into India, putting unsavoury episodes of the past behind them. While Japan’s SoftBank has been investing in Indian startups for years, the biggest bets from some of the recent entrants are in financial services and new-age companies, multiple investment bankers said.
Leading companies such as Yes Bank, Avendus Capital Financial Services and HDB Financial Services have attracted bids from large Japanese banks. Earlier this year, Mitsubishi UFJ Financial Group (MUFG), Japan’s largest financial firm, approached HDFC Bank for a $2 billion stake in its subsidiary HDB Financial Services. While a Mint report on 4 September said the HDFC Bank board has decided to skip the deal, Moneycontrol reported on Monday that talks have resumed. Meanwhile, MUFG topped up its $400 million investment in digital lender DMI Finance by another $334 million in August, and led a $47 million round in wealth management firm Neo Group.
Separately, Japanese trading firm Sumitomo Corp. has outlined plans to invest $710 million to build renewable energy projects in India along with Delhi-based Ampin Energy Transition, while its peer Marubeni Corp. is looking to invest $300 million in industrial parks in Uttar Pradesh. Japanese beermaker Kirin Holdings added to its investment in craft beer maker Bira91 this year, while Japanese auto firms have stepped up investments in electric vehicles. In 2024, the government-backed India-Japan Fund (IJF) invested ₹400 crore in Mahindra Last Mile Mobility Ltd, a unit of Mahindra & Mahindra Ltd.
Interest building up
“This interest has been building up over the last several years, with all three Japanese mega banks (SMBC, MUFG and Mizuho) now all having strategic investments in India by way of Fullerton, DMI Finance and Credit Saisson India. Furthermore, both MUFG and SMBC have become active in taking minority investments in India’s startup ecosystem, and so have most of the Japanese large trading houses,” said Klaas Oskam, chief executive officer of DC Advisory, an investment bank owned by Japan’s Daiwa Securities.
Oskam added that there has been greater interest and intent from Japanese firms in Indian transactions this year, although some of these deals are yet to materialize. Much like other countries, Oskam explained that there is also an interest among several Japanese firms to add production locations and gain access to other high-growth markets like India within Asia, which is increasingly becoming a strategic priority for many large global corporates given its size and growth trajectory. For instance, Toyota said in August that it would build a factory for electric vehicles in India.
“These investments are typically from balance sheets and are therefore long-term in nature,” said Bhavik Hathi, managing director at Alvarez and Marsal. He added that India also became a destination for Japanese firms after the attractiveness of China has reduced. Japan is also de-risking its exposure from China, other experts said.
Further, in 2024, Japanese domestic M&A also hit a record thanks to increased need to deliver shareholder returns and return on equity, DC Advisory’s Oskam said. Japanese firms are more willing to divest non-core assets to private equity, dismantle cross-holdings that Japan historically was known for and beef-up segments that are deemed core, he added.
“There is enough Japanese money waiting to be invested and given that the local return on capital is not high, firms are looking outside their home country for investment opportunities,” Alvarez’s Hathi added.
Apart from Softbank Holdings’ continued interest in Indian tech firms over the last few years, both countries also have government-backed sovereign funds keen to invest further in India.
Scars from battles past
Most of the recent Japanese interest is from large trading houses and banks, while smaller firms remain cautious.
Rishabh Shroff, partner at Cyril Amarchand Mangaldas, noted an increase in disputes between Indian partners and foreign investors, particularly Japanese firms. Many Japanese companies are now opting for arbitration, especially through neutral bodies like the Singapore International Arbitration Centre (SIAC). “Whatever be the ground reality on timing, the perception abroad continues to be that Indian courts are backlogged and slow,” he said.
Ashish Kabra, head of the Singapore office at Nishith Desai Associates, pointed to high-profile cases that could have contributed to the shift in foreign investment strategy. One example is the Ricoh India financial fraud, where the company was found to have falsified accounts. The scandal led the Securities and Exchange Board of India (Sebi) to conduct a forensic audit. Ricoh Co. Ltd., the Japanese parent, eventually severed ties and sold its shares to third parties.
Another case Kabra mentioned was relates to Tata-Docomo, which began in 2009 when NTT Docomo purchased a stake in Tata Tele Services Ltd. Docomo sought an exit in 2014, leading to arbitration. The the London Court of Arbitration ordered Tata Sons to pay $1.17 billion for breaching their agreement, which it paid in 2017.
The most high-profile legal case is Daiichi Sankyo’s fraud claim against the erstwhile owners of Ranbaxy Laboratories, after they purchased the drugmaker for $4.6 billion in 2008. In 2016, two years after Daiichi sold Ranbaxy to Sun Pharma, the Japanese pharma group won a $525 million claim against Ranbaxy founders in a Singapore arbitration court. This also scuttled later transactions involving the Ranbaxy Singh brothers’ other assets such as the sale of Fortis Healthcare to IHH Healthcare.
Eyes on wider presence
However, several Japanese companies and investors may still look to widen their presence across sectors including semiconductors, artificial intelligence, and green & sustainable energy, said Vipin Singhal, associate director, Anand Rathi Investment Banking. He added that GIFT City also poses as an attractive opportunity for Japanese companies looking to enter India’s financial sector.
Several recent exits by Japanese investor Softbank Holdings from Indian investments such as Swiggy and First Cry could also spur subsequent investments from Japan.
There are about 4,000 Japanese companies in India across transportation, automobiles, telecommunications and the services sector, which together plan to invest 5 trillion yen by 2027. Japan has encouraged many of its companies to set up manufacturing facilities in various Asian markets especially India, with it being one of the most lucrative options due to factors such as the performance-linked incentive scheme, and low wages, according to Singhal.
