Japan's intrepid yield hunters boost SMAM's India bond fund

[TOKYO] The world's most intrepid yield hunters - Mr. and Mrs. Watanabe - are after Indian assets, drawn by the nation's stable currency and bond yields among the highest in Asia.

Sumitomo Mitsui Asset Management (SMAM)Co's Indian bond fund, co-managed with Kotak Mahindra Asset Management, took in a net 24 billion yen (S$293.7 million) from December through June, lifting total assets to about 87 billion yen as of July 10, company data show.

"The pursuit for high-yielding assets continues to be strong among Japanese retail investors," said Hiroyuki Kato, Tokyo-based senior fund manager of Sumitomo Mitsui Asset's global investment management group. "India stands out because of a slew of positive stories. Isn't it great that it offers a high yield and yet the market is very stable?" Japanese investment trusts' holdings of Indian securities more than doubled to 898 billion yen in June from a year earlier, data from Investment Trusts Association, Japan show. The rupee has gained 6.1 per cent versus the dollar in the past six months in Asia's top performance. The nation's 10-year bond yield of 6.45 per cent ranks second after Indonesia among major Asian economies and compares with 0.075 percent in Japan.

Why is India so popular now?

India is becoming a popular destination because of improvements in fundamentals. Fiscal deficit has narrowed and is likely to shrink further, while the current-account deficit has also decreased. Inward direct investment can finance the current-account gap, which is positive for the rupee and currency stability Inflation has been under control and the Reserve Bank of India has gained credibility for curbing it.

A series of positive news including the ruling party's win in state elections have helped boost Prime Minister Narendra Modi's government; the goods and services tax roll out has led to limited disruption and the impact from the scrapping of high-value currency bills has been smaller than expected.

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