BFSI RULES

FIVE OUT OF SIX DEBU­TANTS IN THE TOP 100 RANK­INGS ARE FROM THE FI­NAN­CIAL SER­VICES SEC­TOR.

Business Today - - BT 500 - By Anand Ad­hikari

FOR DECADES, com­mer­cial banks – rep­re­sent­ing the fi­nan­cial ser­vices in­dus­try – dom­i­nated the mar­ket cap game at the stock mar­ket. The jour­ney started from pub­lic sec­tor banks (PSBs) and later shifted to pri­vate banks. As a re­sult, in the past decade, the mar­ket has seen wealth cre­ators such as HDFC Ltd, HDFC Bank, Ko­tak Mahin­dra Bank and SBI emerge in the Top 10 league, rub­bing shoul­ders with the likes of Re­liance In­dus­tries, TCS, ITC and HUL. This feat was achieved in part be­cause of more in­sti­tu­tional in­vestors repos­ing their faith in th­ese com­pa­nies. But this peck­ing or­der is set to change in the next decade as new fi­nan­cial ser­vices com­pa­nies are de­but­ing at Dalal Street.

In the past two years, the life in­sur­ance in­dus­try, which earns close to ` 2 lakh crore as an­nual pre­mium, has made its de­but with three listed play­ers – HDFC Life, SBI Life and ICICI Pru Life. If state-owned LIC alone were to come up with an ini­tial pub­lic of­fer­ing (IPO), with as­sets un­der man­age­ment of over ` 30 lakh crore, it would top the mar­ket val­u­a­tion charts. Sim­i­larly,

the gen­eral in­sur­ance in­dus­try, with an­nual pre­mium in­come of ` 1.50 lakh crore, has opened its ac­count in the mar­ket with ICICI Lom­bard and state-owned New In­dia As­sur­ance Com­pany. The re-in­surer GIC Re, too, had a suc­cess­ful de­but. More re­cently, the mar­ket saw two as­set man­age­ment com­pa­nies (AMCs), HDFC As­set Man­age­ment and Re­liance Nip­pon Life As­set Man­age­ment, get listed. The mi­cro fi­nance in­sti­tu­tion turned full scale bank, Band­han Bank, and small fi­nance banks have made an en­try in the stock mar­ket.

“Th­ese new seg­ments of fi­nan­cial ser­vices have a long his­tory of prof­itable op­er­a­tions. In­vestors are happy to own th­ese stocks,” says Harendra Ku­mar, MD and Head-in­sti­tu­tional eq­ui­ties and global re­search at Elara Cap­i­tal. In Busi­ness To­day’s study of the top 500 com­pa­nies in the stock mar­ket, the fi­nan­cial ser­vices sec­tor is spread out and in­cludes in­sur­ers, AMCs and mi­cro fi­nance in­sti­tu­tions turned banks. In fact, the bank­ing, fi­nan­cial ser­vices and in­sur­ance (BFSI) sec­tor rules the roost with five of its six debu­tants mak­ing it to the top 100 com­pa­nies in terms of mar­ket cap. The com­bined av­er­age mar­ket cap of th­ese five com­pa­nies is ` 3.42 lakh crore, which is al­most half of the mar­ket cap of the largest pri­vate sec­tor con­glom­er­ate, Re­liance In­dus­tries. RIL is at the top po­si­tion in BT 500.

In terms of rank­ing, too, the debu­tants are in healthy po­si­tions. HDFC Stan­dard Life In­sur­ance is sit­ting com­fort­able at No.32. SBI Life In­sur­ance is at No.48 (par­ent SBI is at No.9). Band­han Bank is at the 49th po­si­tion, which is ahead of many es­tab­lished banks. A closer look shows that th­ese three com­pa­nies have moved passed vet­er­ans such as MRF, ACC, Col­gate and Bri­tan­nia. There are sur­prises from non-bank fi­nan­cial com­pa­nies (NBFCs) too. Ba­jaj Fi­nance, for ex­am­ple, has a cur­rent mar­ket cap of ` 1.21 lakh crore, which is much big­ger than that of some es­tab­lished banks.

So, what’s fuelling in­vestor in­ter­est in fi­nan­cial ser­vices sec­tor? Ex­perts sug­gest that the low pen­e­tra­tion of fi­nan­cial ser­vices (bank­ing, in­vest­ment and in­sur­ance) of­fers a huge scope for growth in th­ese busi­nesses. Also, the econ­omy has dou­bled in size in the past decade to $2.6 tril­lion, lead­ing to more in­come in the hands of peo­ple. While house­hold sav­ings as a per­cent­age of GDP was al­ways high at 29-32 per cent, there was not much money flow­ing into the fi­nan­cial as­sets. This trend is grad­u­ally chang­ing. Post-de­mon­eti­sa­tion, in­vest­ments

“TH­ESE NEW SEG­MENTS OF FI­NAN­CIAL SER­VICES HAVE A LONG HIS­TORY OF PROF­ITABLE OP­ER­A­TIONS. IN­VESTORS ARE HAPPY TO OWN TH­ESE STOCKS” HARENDRA KU­MAR MD and Head-In­sti­tu­tional Eq­ui­ties, Elara Cap­i­tal

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