Financial services sector is seen as the backbone of India’s economic growth. The country has a well-diversified financial sector that is seeing a fast-paced expansion. The sector’s growth has been driven by factors like favorable government policies, innovative products and services, high-quality business fundamentals, and a higher focus on under-penetrated business areas.
As India continues to see rising disposable incomes, sustainable economic growth, rising consumerism and better access to credit, the financial services sector has caught the fancy of many investors.
Here’s a detailed look at the financial services sector in India. Also know the Top 5 stocks in the financial services sector to tap onto the sector’s growth story.
Financial services sector comprises mutual funds, insurance companies, commercial banks, non-banking financial corporations (NBFCs), pension funds, cooperatives, and other small-scale financial companies. With the banking regulator allowing new entities like payment banks, small finance banks etc. to be included in this sector, it is experiencing further enhancement.
Did you know?
The financial services sector in India is experiencing rapid growth accounting for close to 6% of the country’s GDP.
Until a few decades ago, India had a mostly government-dominated financial services sector, since the majority of services were offered by nationalised banks. Massive reforms were initiated in this sector initiated in 1991 with an objective to accelerate economic growth as the government opened up the sector for foreign direct investment.
The table below shows some of the key growth drivers in the sector:
| Benefits of FDI | India is considered one of the most vibrant economies in the world due to a strong financial services sector. With foreign investment rules getting relaxed, the country is seeing a positive influx in the insurance sector as many global companies are now entering into joint ventures with Indian companies. |
| Insurance segment growth | Demonstrating a huge growth potential, India’s insurance market may touch US$ 250 billion by 2025. By 2030, the country’s insurance segment may see close to US$ 78 billion of additional life insurance premiums. |
| CAGR of mobile wallets | The sector’s mobile wallet segment is likely to achieve a Compound Annual Growth Rate (CAGR) of 150%. |
| Dominance of mutual funds | The mutual fund segment is also expecting a five-fold growth in assets under management to touch US$ 1.47 trillion. It is likely to see a three-fold rise in investor accounts in the next 3-4 years. |
| Operational efficiency | Companies in this sector are focusing on widening their outreach through emerging technologies with an end-objective of sharply reducing the cost of operations. |
| Smartphone penetration | With increasing availability of smartphones across the nation along with cheaper data connections, most citizens of the country can easily make use of financial products such as insurance, mutual funds, loans, Demat account, etc. with online KYC processes. |
| Innovation in FinTech companies | Financial technology or FinTech companies are aggressively using technology to offer financial services such as personal loans, insurance, mutual funds, etc. across the country. |
Did you know?
As per statistics, by 2028, India is likely to rank fourth among the private wealth markets across the globe.
(Source- IBEF)
Let’s find out which are the top 5 stocks in the financial services sector as per market capitalization:
Established in 2007, Bajaj Finance Limited is an Indian NBFC offering financial products like loans, wealth management, general insurance, loans for small and medium-sized enterprises (SME), consumer finance, and commercial lending. Apart from a strong focus on retail financing, the company also launched IPO financing services for HNIs. The company’s future plans include widening its presence across semi-urban and rural areas through new product introductions. The key details of this company are tabled below.
| Category | Details |
| Market Capitalization | Rs. 4,75,487 crores |
| PE Ratio | 41.46 |
| Return on Equity | 23.46 (July’23) |
| Debt Equity Ratio | 3.16 (July’23) |
| Promotor’s Holdings | 55.91% |
| Share price | Rs. 7,838 (05 July 2023) |
| Dividend Yield | 0.38% |
Bajaj Finserv Ltd offers products like life and general insurance, along with consumer finance. Other primary focus areas include SME lending, rural lending, commercial lending, loan against securities and mortgage lending. It is also actively engaged in wind-energy generation. The company has plans to expand its offerings across various financial products and services. The company’s management is planning to unleash Bajaj Finance 3.0 for a more agile business approach that will adopt digital enhancements for aggressive growth. The key details of this company are tabled below.
| Category | Details |
| Market Capitalization | Rs. 2,59,217 crores |
| PE Ratio | 40.50 |
| Return on Equity | 14.81 (July’23) |
| Debt Equity Ratio | 4.57 (July’23) |
| Promotor’s Holdings | 60.78% |
| Share price | Rs. 1,613 (05 July 2023) |
| Dividend Yield | 0.05% |
This non-banking finance company has two main business segments, financing and power generation. The company’s focus areas include financial services, foreign exchange, insurance distribution, personal and business loans against gold jewellery. The company is known for its gold loans that are primarily offered to individuals who have gold jewellery but are unable to gain formal credit for short-term liquidity needs. The Company boasts of close to 3,678 branches spread across 21 states in India. The key details of this company are tabled below.
| Category | Details |
| Market Capitalization | Rs. 49,866 crores |
| PE Ratio | 12.80 |
| Return on Equity | 17.86% (July’23) |
| Debt Equity Ratio | 2.56 |
| Promotor’s Holdings | 73.35% |
| Share price | Rs. 1,260 (05 July 2023) |
| Dividend Yield | 1.77% |
HDFC Asset Management Company is a joint venture between Housing Development Finance Corporation Limited (“HDFC”) and Standard Life Investments Limited (“SLI”). The company offers mutual fund schemes and the main revenue driver is the fees generated for managing these schemes. Since 2013, it has been one of the most profitable AMCs in India. It boasts of a strong pan-India network of distributors, agents, and bank collaborations. The company also enjoys economies of scale that help in maintaining low costs and higher profitability. The key details of this company are tabled below.
| Category | Details |
| Market Capitalization | Rs. 48,913 crores |
| PE Ratio | 34.36 |
| Return on Equity | 24.26 (July’23) |
| Debt Equity Ratio | – |
| Promotor’s Holdings | 62.77% |
| Share price | Rs. 2.294 (05 July 2023) |
| Dividend Yield | 2.09% |
ICICI Securities Limited is a leading Indian technology-driven securities company offering varied financial services like investment banking, brokerage and financial products distribution. The company focuses on both retail and institutional clients. Known as one of India’s largest broking houses, the company offers a wide range of investment services, including online and offline stock trading, platform for mutual fund buy/sell, portfolio management services, insurance, Demat accounts, loans and fixed deposits. The key details of this company are tabled below.
| Category | Details |
| Market Capitalization | Rs. 19,587 crores |
| PE Ratio | 17.56 |
| Return on Equity | 42.31% (July’23) |
| Debt Equity Ratio | 3.30 |
| Promotor’s Holdings | 74.85% |
| Share price | Rs. 607.95 (05 July 2023) |
| Dividend Yield | 3.71% |
Here are some of the risks and challenges facing the Indian financial services sector:
The Indian financial services sector is expected to grow at a CAGR of 12% between 2022 and 2027. This growth will be driven by a number of factors, including rising income levels, increased urbanization, and the growing adoption of digital financial services. The sector is also expected to benefit from the government’s focus on financial inclusion and the development of the financial technology (FinTech) sector.
Here are some of the key trends that are expected to shape the Indian financial services sector in the coming years:
With an increased demand driven by the rising incomes of individuals and corporates, the financial services sector is tapping into offerings like wealth management through financial innovation. With more and more Fintech companies joining the financial services space, there is an expansion of offerings in the sector and this will lead to higher growth in the coming years. The service providers in this sector are constantly expanding their outreach using different mediums.
Lastly, government support continues to act as a booster for this sector through various policy measures and initiatives.
As per the Budget 2021-22 announcement, the government approved 100% FDI for insurance intermediaries and raised the FDI limit to 74% from earlier 49% in the insurance sector.
ndia’s financial services sector is one of the main drivers of the economy, providing a free flow of capital and ensuring market liquidity. The strength of the sector is demonstrative of overall economic growth. Also, companies in this sector are better positioned to manage risks.
Since regulatory measures are ever-changing, these pose a major challenge to the financial services sector, as non-compliance often involves huge penalties.
Due to growing competition in this sector, companies find it difficult to retain customers for longer periods. Companies that offer personalisation, automation, and easy access are better able to retain customers.
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