Financial services, particularly banking, is all set for a big bang growth
Whether it is wealth management, retail banking, retail finance, distribution and broking, private equity, investment banking, asset management or insurance, the financial services sector is on a roll. Be it the Tatas (who exited in 2003 to make a comeback this year), the Mittals (Sunil Mittal has ambitions to be a leading player), the Ambanis or the Bajajs, every business house in ensuring that they have a foothold in this sector. Analjit Singh's Max Group has identified financial services as one of the four sectors to invest into, the other three being healthcare, clinical trials and IT/ITeS.
Within this broad sector, the banking sector is slated for some great times. According to estimates, 40 million new households are expected to start banking over the next five years. A recent report on the Indian banking industry published by RNCOS states that the number of debit and credit card users in India is anticipated to reach 73.4 million and 406 million by the year 2010 and 2011, respectively.
While this in itself is great news for the banking industry, they are looking beyond to capture the growth in other areas. As incomes increase and new households come into the banking net, this will gradually translate into a demand for loans, investment products and insurance. And banks are ensuring that they get a slice of every pie, be it broking, insurance, wealth management or distribution. BNP Paribas has joined hands with Geojit Securities (broking), Sundaram AMC (mutual funds), SREI Infrastructure (infrastructure finance) and SBI Life Insurance (insurance). Bank of Baroda and Andhra Bank entered into an agreement with UK-based wealth and investment company Legal & General Group to foray into insurance. While some banks offer online trading services, ICICI Bank has tied up with a US broker to allow Indians to buy shares listed abroad. State Bank of India has tied up with SBI Capital Markets, Punjab National Bank with IDBI Capital Markets and Bank of Baroda with India Infoline. Standard Chartered Bank has acquired a 49 per cent stake in UTI Securities with the option to buy 100 per cent by 2010. This is just a mere sampling of the activity in the sector.
Those who had invested in banking stocks a few years ago would be a happy lot. In a four year time span, the BSE Bankex has moved from 2,346.47 (November 15, 2003) to 11,003.05 (November 16, 2007). Banking funds too have done well for themselves. Reliance Banking delivered with a one-year return of 65.89 per cent and UTI Banking, 69.89 per cent. Banking BeES, an exchange traded fund of Benchmark Mutual Fund, delivered a return of 54.69 per cent. These one-year returns are as of November 16, 2007.
Mutual funds are fast getting onto this wagon. While financial services is one of the most preferred sectors of fund managers, banking dedicated funds are now awaiting approval from the Securities and Exchange Board of India (SEBI). Lotus India Banking Fund will passively manage 65 per cent of the assets of the fund. This amount will be invested in the constituents of the CNX Bank Index in the identical proportion. The balance amount will be invested in any stock in the financial services sector that may or may not be a constituent of the index. Another fund, Lotus India Banking and Infrastructure Fund is also on the cards. In addition, a few more exchange traded funds should also see the light of day; Tata Banking Exchange Traded Fund, PSU Bank Benchmark Exchange Traded Scheme and Private Sector Bank Benchmark Exchange Traded Scheme.
If you want a concentrated holding in this sector and are not invested in banking stocks, you could probably try a mutual fund. When the sector opens up, your investments will pay off. Foreign banks will look for acquisitions and a lot of consolidation will follow. So, whichever route you tap, do ensure that you have an exposure to this sector. After all, 2009 is not too far away.
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This article was originally published on January 09, 2008.
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