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April 22, 2024

[Hello India] Korean investment firms push into India amid China decline

PUBLISHED : April 01, 2024 - 09:44

UPDATED : April 01, 2024 - 09:44

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This image shows a Indian rupee note. (Getty Images)

More South Korean securities and investment firms are turning their eyes to the Indian market, exploring opportunities to tap the world's fastest-growing economy.

NH Investment & Securities recently announced a partnership with Lighthouse Canton, a Singapore-based global asset management institution, as part of this trend.

In January, NH Absolute Return Partners, a Singapore-based asset management company owned by NH Investment & Securities, signed a memorandum of understanding to co-invest in the Indian private debt market.

Lighthouse Canton, a company with $3.5 billion in assets with offices in major Indian cities like New Delhi, Mumbai, Hyderabad and Bengaluru, specializes in the Indian market. Through its collaboration with Lighthouse Canton, NHARP aims to capitalize on joint investment opportunities in private equity bonds in India, leveraging the resources of its parent company, one of South Korea's largest securities firms, while gaining deeper insights into the Indian market.

An official from NH Investment & Securities described the partnership with Lighthouse Canton as the first step in expanding into the Indian market.

"Since the MOU in January, the two companies have continued discussions on forming a joint fund and have further advanced collaboration through sharing insights on Indian market trends," the official told The Korea Herald. "Starting with this partnership, we plan to strengthen our regional network and consider expanding our business into the country's brokerage sector."

The official also noted possible collaborations with NH Financial Group's other subsidiaries, NongHyup Bank and NongHyup Capital, which are already operating in India.

Shinhan Securities, another prominent brokerage firm, has recently deployed an "India Expedition Team" to explore potential business ventures. Four junior-level employees from various departments conducted visits to Bengaluru and Mumbai in September and engaged in meetings with key players in the Indian financial landscape, including the National Stock Exchange of India and HDFC Securities.

The elephant covered with Indian flag signifies Mirae Asset's success in Indian market (Mirae Asset Financial Group)

Leading this trend among Korean financial institutions was Mirae Asset Group, which made its initial foray into India in 2006 with the establishment of a local corporate entity in Mumbai's financial district by Mirae Asset Global Investments.

Capitalizing on India's economic growth, Mirae Asset's Indian investment arm rapidly expanded, currently overseeing 56 funds valued at approximately 25 trillion won ($18.5 billion). Mirae Asset Global Investments' Indian subsidiary stands as the country's sole independent foreign asset manager and ranks among the top 10 firms in the sector.

Building on the success of its investment arm, Mirae Asset Securities entered the Indian market in 2018, becoming the first Korean brokerage to do so. In April 2022, the company launched its online trading platform, m.Stock, marking its official entry into local retail operations. Within just under two years of launching the mobile application, the company surpassed one million retail customer accounts, climbing to eighth position among local online brokers.

In a strategic move to strengthen its position, Mirae Asset Securities acquired the entire stake in Sharekhan Limited, India's eighth-largest stockbroker, in December. With Sharekhan boasting over 130 branch offices and a business network spanning some 4,000 partners, the Korean brokerage aims to establish itself among India's top five companies within the next five years.

Korean brokers are shifting towards India as the country rises as the world's most prospective economy. With the Indian economy recording a growth rate of over 8 percent in the past three quarters, it is expected to expand by 6.5 percent this year, as forecast by the International Monetary Fund, more than double the global average projection of 3.1 percent. Furthermore, the IMF forecasts that India could ascend to become the world's third-largest economy by 2027.

Fueling this robust growth is India's burgeoning population, which has surged to 1.48 billion, surpassing China to become the world's largest. With an average age of 28 years, India's population is nearly a decade younger than China's, as per World Population Prospects data.

Additionally, seizing upon heightened global supply chain risks amplified by the US-China rivalry, India has emerged as the alternative supply chain hub to replace China.

Reflecting this economic potential, Indian stocks have surged. The Indian Sensex, one of the country's main stock indices, jumped by 18 percent last year, while another key index, the Nifty50, saw a 28 percent increase last year, both continuing the upswing into this year. As a consequence, in January, the Indian stock market surpassed Hong Kong's to become the world's fourth-largest equity market.

People stand in front of a logo of Bombay Stock Exchange in Mumbai, India, 21 August, 2023. (Getty Images)

Despite such a rosy outlook, Korean investment firms face challenges in expanding their business in India.

One significant hurdle is the stringent requirements for foreign retail investors to enter the market.

"From opening an account to obtaining local taxpayer status and securing approval from the State Bank of India, there's a complex process that makes it challenging for foreigners to invest directly in the Indian market," explained Park Woo-yeol, an analyst at Shinhan Securities.

Delving deeper, Han Sang-hee, an analyst at Hanwha Investment & Securities, explained that Foreign Portfolio Investment is what enables foreign retail investment in India yet makes everything all so difficult at the same time. According to Han, for a foreigner to invest through FPI, one must submit and get approval for around a dozen documents from the local authorities, get a Permanent Account Number and designate a local tax agent.

"Even with a determined commitment to navigate this process, there's another obstacle to overcome -- India's notoriously inefficient public services," Han said, adding, "This means that investing in individual stocks is almost impossible."

This is why Korean stockbrokers have only provided indirect investment options through exchange-traded funds linked to the Nifty50 for local investors so far. According to the Korea Securities Depository, no South Korean has directly traded in the Indian market.

NH Investment & Securities, which is considering launching brokerage services for retail investors, emphasizes the need for significant regulatory improvements in India, especially in regard to the complex taxation for foreign investors.

"The Indian government intends to simplify the capital income taxation system, but the timing of such reforms remains uncertain. Once these revisions are enacted, we'll explore various possibilities, including brokerage services," stated an NH Investment & Securities official.

By Choi Ji-won (jwc@heraldcorp.com)
The Korea Herald

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