By Eriko Amaha and Thomas Kutty Abraham TOKYO/BOMBAY - Motofumi Okuma, who manages a 110 billion yen ($990 million) India fund at Nomura Asset Management Co. Ltd. in Tokyo, has a luxury problem. Before its launch on June 22 the fund was quickly swamped with so much money that in order for the fund not to disturb the India market, it had to halt sales a day later. The India retail funds boom in Japan has added to concerns about a foreign-funded bubble in Bombay.

"If money from Japan grows rapidly, it would create a situation in which Japanese money pushes India stock prices higher. That would make my life difficult," said Okuma. India is poised to grow at nearly 7 percent in the current year to March, roughly unchanged from last year and down from 8.5 percent in 2003/04. But the pace of inflows is rising. So far this year, global institutional investment in equities has hit $6.9 billion, compared with $8.5 billion for the whole of 2004. India equity investment funds kicked off in Japan in September. By the end of July they were worth 445.3 billion yen. Analysts say the pace of investment flows will probably slow, topping out at around 500 billion yen by the end of this year.

Yasushi Aoki, senior manager at Fidelity Investments Japan's investment marketing department, says Japanese investors are in for the long haul. "This is not a passing fad. India will be, for Japanese investors, a core market to invest in." BUBBLE CONTROL Indian analysts say foreign fund buying is largely behind strength in the Bombay Stock Exchange index over the last two years. The benchmark index has risen more than 17 percent so far in 2005, the fourth best in Asia behind a near 40 percent surge in Colombo, and gains of around a fifth in Seoul and Karachi.

With little to excite them at home, where interest rates are near zero and the Nikkei average has gained a paltry 2.4 percent in 2005, Japanese retail investors will stay focused on growth markets such as India and China, analysts said. Kirby Daley, strategist at Societe Generale Securities Fimat division in Tokyo said the rapid development of the Indian market and economy make a compelling investment story. "If the level of growth and the integrity of the markets can be maintained, investors should be happy," he said. PCA Asset Management Ltd, which has garnered about 50 billion yen for its India fund, said it was wary of Japanese demand inflating a bubble. "We could pick India stocks with fair valuations if our investment amount stays at a few hundred million yen a day. But if the amount were to grow 10 times, it would be tough to handle with the current market levels. We would have to buy overvalued stocks," said Yosuke Takahashi, director of marketing communications and strategic PR at PCA Asset in Japan.

Atsuji Ohara, global strategist at Shinko Securities in Tokyo, said with the summer bonus season over and the vacation season underway brokers may temper their marketing efforts. FOREIGN FUEL Foreign investment has pushed Indian stocks to a 12-month forward price-to-earnings ratio (PE) of nearly 15, as measured by the MSCI India index, a benchmark by foreign investors. That compared with a PE ratio of 11.5 in China's H shares and 14 in Shanghai Index 50, according to Ohara of Shinko Securities. Japan's Nikkei PE ratio stands at around 17. The index has risen by nearly 15 percent so far in 2005.

"With the Indian market hitting new highs, valuations are not as attractive as a year ago," said Vijay Tohani of First State Regional India Fund in Bombay. But foreign inflows into India, a high-risk target for global investors, were probably more susceptible to a downturn in global growth, which would sour risk appetite, than worried about high Indian valuations, he wrote in a recent report. Japan's infatuation with India follows similar interest in China. There were 70 China funds in Japan last September with outstanding assets hitting a peak of 740 billion yen. Some investors, worried by anti-Japan protests in China this spring, sold out, pushing that number down to 568 billion yen by the end of July, but the number of funds had grown to 76. Though China's stock markets are the worst performing in Asia in 2005 -- the Shanghai composite index is the only Asian benchmark in negative territory -- the MSCI China index is up more than 12 percent this year.