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