India Financials – well poised..
With miniscule household savings invested in equity , India was always a big draw when it came to potential in private banking and wealth management . But so far , it has remained just that , as an elusive promise with little to show on the ground . Back in 2006-07 amid rising bull market , enthusiastic estimates were pulled straight out of spreadsheets by scholarly analysts on changing landscape of household savings in India . Daring projections were made on how household savings will structurally shift from physical to financial assets . But surging gold price and rocketing real estate ( coupled with stubborn inflation) did the damage to their pompous projections with financial savings nose-diving in the subsequent years .
Not to take away the credit from those well intentioned analysts , they might still get it right , decade late though . Yes , the elusive wait seems to be ending and the shift is showing up now . The key difference between then and now is how the ever-green darlings of Indian households have been deflated by precipitous fall in gold prices and punctured property prices. Worsening outlook for these asset classes coupled with rising real interest rates ( on falling inflationary pressures) will hasten the shift that analysts have been anxiously waiting for . For the seasoned ones , the early signs of such a shift are spottable . Dazzling domestic retail flows into equity mutual funds , rising interest in financial savings are the pointers that pundits can ill afford to ignore. For the first time ever , Indian markets held up well (with minor bruises) during the carnage that ensued Fed and Greek events this year because of domestic mutual funds support . Not a small feat for the market that has been dominated by FIIs. No surprise that equity mutual funds AUM has swollen by 50%+ last year to touch all time high of Rs 3.72 tn . Same is the case with other financial savings like term deposits . Lured by the rising real interest rates , term deposits have surged 55% this fiscal to touch Rs 2.65tn resulting in excess liquidity in the banking system .
For investors , what are the implications . How does it help to spot the next successful business . Needless to say , it is advantage Financials . While private banks will get the slice of the surge , mutual fund distribution and wealth management businesses will get most of the meat. If the interest shown by foreign investors on the financial distribution (wealth management) space is anything to go by , this space will gain traction in the coming months and years . If Fairfax’s voluntary open offer to acquire significant stake in India Infoline (IIFL) or Kotak Bank’s acquisition of ING Vysya (which has huge private banking franchise) is anything to go by , the writing on the wall is clear . For the uninitiated , Fairfax is the Berkshire of Canada owned by hugely successful value investor Prem Watsa with thriving business empires across the globe .
Watch out this space (financial distribution , wealth management , investment and portfolio management businesses etc ) for interesting long-term investment opportunities to benefit from upside from the structural shift ( from physical to financial assets) that is underway in the Indian households . Listed space is loaded with such companies that can be put on the watch list for the right entry !
ArunaGiri . N