India: The Age of Financialisation
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.