‘Japan crisis wont hit Indian markets’

But fears loom as 5% of Indian FII stock portfolio is owned by Japanese funds.

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While Indian listed companies have no major exposure to businesses in Japan,the aftershock is being felt in the form of poor investor sentiment. Sensex has been falling with widening nuclear crisis in quake-hit Japan. The index fell 272 points to close at 18,167 on Tuesday.

The major worry is that the increased risk aversion among global investors could lead to diversion of funds from India; either by Japanese or other foreign funds. Some experts are in fact speculating that Japanese funds will either divert money for local reconstruction or invest in the undervalued assets. However,if industry figures are any indication,at least Japanese funds with India focus might not be able to do much harm in the Indian equity markets. Among foreign institutional investors portfolio of close to $180 billion,Japanese funds with India focus comprise at least $8.2 billion,or just 5% of overall FII holdings.

However,the pessimists are speculating that even a 10% selling of existing Japanese fund portfolio could bring the market down by 10%,or even more. After all,it took $ 1.7 billion of FII money to be sold on a net basis to pull Sensex down by 11.4% for the year.

Other experts believe the Indian market is neither a beneficiary nor has anything to lose because of the tanking of Japanese equity markets. Japanese funds are investing in India for lack of investment opportunities back home. These funds rather have more reasons to increase exposure to India after the crisis, said Shankar Sharma of First Global. He said at best the developed equity markets such as the US could benefit from increased allocation as Japanese equity investments are part of developed market portfolio. Nikkei 225 for the year till date is down 15.9% and is at its two-year low. For the year,Japanese stock market has received $20.7 billion worth of equities on a net basis. As per Citi report,$95 billion worth of equities flowed into emerging equity markets out of which $29.3 billion flowed into the Indian markets. However,with developed economies gathering steam this year,emerging markets money has been diverted towards the US and other developed markets. According to Bloomberg data,while Dow returned 1.4% for the year,Euro Stoxx 50 gave a negative return of 2.1%.