Japan Overtakes the US as India's Top Source of Capital

India Japan Kaizen — Investment Bridge Series, Part 3

Part 1 of this series mapped where Japanese capital was already flowing into India, and named GIFT City's fund-registration framework as one of the more overlooked routes in. Part 2 went sector by sector — semiconductors, Global Capability Centres, deep tech — and promised a closer look at GIFT City's actual fund flows and the specific VCs and corporates worth knowing on each side. In the week since Part 2 published, India's own government data delivered a headline none of this series' earlier posts anticipated: for the first time in years, Japan didn't just rank among India's top capital sources. It topped the list outright.

The Number That Reframes Everything Before It

According to India's Department for Promotion of Industry and Internal Trade (DPIIT), total FDI into India rose 6% year-on-year to $19.81 billion in the April-June 2026 quarter. Japan led all sources at $5.71 billion, ahead of Singapore ($5.22 billion), Mauritius ($2.31 billion), the Netherlands ($1.38 billion), the United States ($1.34 billion, down more than 76% year-on-year), and the UAE ($868 million). Some of that is the US falling rather than Japan surging — but Part 1 already documented the underlying trend line: Japanese FDI into India's transport sector alone grew more than sevenfold between 2021 and 2024. The sectors pulling in this quarter's money read like a checklist of the first two parts of this series — services ($7.04 billion), computer software and hardware ($2.84 billion), trading ($1.92 billion), non-conventional energy ($1.24 billion), and auto ($622 million).

GIFT City Quietly Became the World's Busiest Fund Hub

Part 1 flagged GIFT City's IFSCA-regulated Alternative Investment Fund framework as an increasingly real alternative to routing capital through Singapore or Mauritius. That's no longer a hedge — it's now the larger option. Assets in GIFT IFSC crossed $111 billion in 2026, with 194 registered Fund Management Entities running 310 schemes between them. Total AIF commitments have crossed $26.3 billion, with more than $11 billion already deployed, and GIFT City has overtaken both Singapore and Mauritius to become the largest onshore-and-offshore hub for these funds anywhere — driven largely by the fastest-growing category, Category III funds built for complex, leveraged, cross-border strategies. For a Japan-based manager weighing where to domicile a vehicle aimed at India, the four-to-six-week registration timeline Part 1 described now sits inside what is, by scale, the biggest pool of its kind.

Three Japanese Banks, Three Different Bets

Look past the country-level number and the shape of Japanese capital gets more specific. Three of Japan's largest financial groups are each running a distinct playbook right now:

• MUFG is preparing to launch a dedicated India-focused startup fund with a $250 million initial corpus that could scale to $400 million, led by Mayank Shiromani, deputy chief investment officer at MUFG Innovation Partners. The mandate centres on early-stage fintech, with room for select growth-stage bets — a natural extension of MUFG's existing 20% stake in Shriram Finance.
• SMBC's Asia Rising Fund, raised roughly two years ago at $200 million, has already committed $100 million across a dozen startups spanning India and Southeast Asia, including Vayana, Modifi, and M2P Solutions, and expects to have the full corpus deployed by the second half of 2026 — a dedicated venture vehicle distinct from the direct equity stake in Yes Bank covered in Part 1.
• Mizuho made the boldest move of the three: Mizuho Securities agreed to buy a majority stake — between 61.6% and 78.3% — in Avendus Capital, one of India's own homegrown investment banks, for up to ¥81 billion (roughly $523 million), buying out KKR affiliate Redpoint Investments and Avendus co-founder Ranu Vohra. The deal, expected to close around July 2026 with Avendus's existing leadership staying in place, is different in kind from the other two: it's not a fund writing checks into Indian startups, it's a Japanese institution buying a piece of the Indian dealmaking infrastructure itself.

The Smaller Names Actually Worth Knowing

Part 1 named SoftBank, Rebright Partners, BEENEXT, and a handful of purpose-built cross-border vehicles as the investors already active in Indian startups. Two of those are worth a fresh look. Rebright Partners hasn't slowed down: its latest tracked India deal is a $55.1 million round in healthcare marketplace Medikabazaar in February 2026, part of a portfolio that now runs to 47 companies since the firm's founding. Enrission India Capital, a much smaller and more specialized vehicle, exists specifically to bridge Japanese investment to Indian entrepreneurs — its most recent seed check went to logistics-tech startup Hexalog in January 2026. Alongside Part 1's Unleash Capital Partners and Incubate Fund India, these are the names doing the unglamorous work of actually writing checks at a scale most mid-sized companies or funds could realistically approach — a sharp contrast to the nine-figure commitments above.

What's Still Missing

Everything above sits at one of two extremes: bank-scale capital (MUFG, SMBC, Mizuho, each moving eight or nine figures at once) or boutique vehicles quiet enough that most people only hear about them after the check has cleared. There's still no accessible way for a smaller Japanese family office or a first-time Indian fund manager to find out which of these names will actually take a cold, unintroduced email. And the flow this whole series has covered only runs one direction — Japanese capital moving into India. The reverse, an Indian fund manager raising a corpus that includes Japanese limited partners, is barely documented at all, even as GIFT City's own fund framework makes that structure easier to build than it's ever been.

If you manage a fund, run corporate development at a Japanese or Indian company, or are building a cross-border vehicle in either direction — get in touch. That's exactly the kind of introduction India Japan Kaizen wants to help make.

This is Part 3 of India Japan Kaizen's Investment Bridge Series, publishing weekly. Part 4 will look at the exit side of this story — the wave of Japanese-backed Indian startups, including Lenskart, Meesho, and OYO, heading toward IPOs, and what a strong listing season would mean for the next generation of cross-border funds.