In­dia: The Age of Fi­nan­cial­i­sa­tion

The Economic Times - - Finance & Commodities -

mil­lion to 1.3 mil­lion. Monthly SIP flows are now around .₹ 4,500 crore – an an­nual in­flow of more than .₹ 50,000 crore! Grow­ing aware­ness in eq­uity mar­kets will have a col­lat­eral pos­i­tive im­pact on in­vestor in­ter­est in other fi­nan­cial as­sets like in­sur­ance and bond mar­kets. With grow­ing ac­cep­tance in the power of in­vest­ing, re­tail in­vestors will be open to ex­plor­ing newer avenues of in­vest­ment. Reg­u­la­tors and or­gan­i­sa­tions are mak­ing ef­forts to ed­u­cate in­vestors on fi­nan­cial in­vest­ments. Un­der-pen­e­tra­tion in sec­tors like in­sur­ance pro­vides room for growth.

DEMOCRATISATION OF CREDIT

The fi­nan­cial­i­sa­tion of as­sets is only one part of the In­dia growth story. An equally im­por­tant facet is around democratisation of credit al­lo­ca­tion in the econ­omy. Al­lo­ca­tion of cap­i­tal in eq­uity and debt mar­kets has un­der­gone an evo­lu­tion­ary change. To­day, these mar­kets al­lo­cate cap­i­tal purely on fun­da­men­tal strengths in the busi­ness of a com­pany. How­ever, 70 years after in­de­pen­dence, a sig­nif­i­cant por­tion of bank­ing credit is ex­tended to top 100 busi­ness houses. There is a sig­nif­i­cant un­tapped opportunity in the re­tail lend­ing side of the busi­ness. This would in­clude loans to in­di­vid­u­als and to SMEs.

The sit­u­a­tion is chang­ing now, par­tic­u­larly be­cause of the size­able lev­er­ag­ing abil­ity of house­holds. To­day, the gov­ern­ment bal­ance sheet is be­ing lever­aged for con­sid­er­able capex in­vest­ments that are hap­pen­ing. The cor­po­rate bal­ance sheets are at the tip­ping point or maybe over-lever­aged. In­dian house­holds are the only seg­ment with bor­row­ing ca­pac­ity. Cou­pled with fall­ing in­ter­est rate, house­holds are ready to bor­row more.

The in­tro­duc­tion of Aad­haar, cou­pled with the JAM trin­ity has helped bring a huge part of the pop­u­la­tion un­der the fi­nan­cial net. With con­tin­ued strength­en­ing in CIBIL, im­proved credit un­der­writ­ing mech­a­nisms and the use of a wider va­ri­ety of data points to as­sess the credit wor­thi­ness of in­di­vid­u­als and small busi­nesses, ac­cess to credit is ex­pected to in­crease for the credit-de­fi­cient sec­tions of so­ci­ety and lead to a broad-bas­ing of credit al­lo­ca­tion in the econ­omy.

FU­TURE – OP­TI­MISM ABOUNDS

With such a wide va­ri­ety of fac­tors fall­ing in place, there is sig­nif­i­cant cause for op­ti­mism for In­dia. Fun­da­men­tal struc­tural changes are re-shap­ing the econ­omy and cycli­cals are starting to be­come stronger. With the global econ­omy starting to re­cover, the cu­mu­la­tive ef­fect should drive the econ­omy to new heights. There are chal­lenges which we need to be cog­nizant of – lack of job cre­ation, im­pact of strength­en­ing ru­pee on trade and chal­lenges on agri­cul­ture. To truly un­der­stand the In­dia story needs a bi­fo­cal vi­sion – one which can cut through the short-term volatil­ity and chal­lenges and look at the long-term trend, which has al­ways been up­wards. Be­cause, the near-term volatil­ity is in­her­ently vis­i­ble and the longterm growth usu­ally in­vis­i­ble; a truly all-en­com­pass­ing bi­fo­cal vi­sion helps look at the econ­omy in a ra­tio­nal man­ner. The mantra should be to play the long-term pos­i­tive trend and man­age the short-term un­cer­tain volatil­ity, rather than the other way round. If the short-term is man­aged well and the long-term played to its op­ti­mum, it is a great time to be a part of the In­dia growth story and to reap the growth dividend along with the econ­omy.

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