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Report on Financial Services

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Exclamation Report on Financial Services - October 17th, 2008

Financial Services

Last Updated: July-September 2008


The Indian financial sector is on a roll. Driven by a strong investor interest and an expanding market, the industry is also becoming more vibrant, with new types of products and services being offered to meet the needs of the booming economy.

The buoyancy in the economy is estimated to lead to a four-fold increase in India's investable wealth from US$ 250 billion in 2007 to US$ 1 trillion by 2012. Simultaneously, according to a report by Celent, an international consultancy firm, India's wealth management segment will rise to an estimated 42 million households by 2012 from about 13 million households in 2007.

Clearly, there is huge potential in this segment. Significantly, wealth management revenues are expected to account for 32-37 per cent of the total full-service financial institutions by 2012. The market is also expected to undergo a structural transformation with organised players increasing their market share.

The attractiveness of India in the global financial market is also reflected in the Indian cities - Mumbai, New Delhi and Bangalore - finding a place of pride in the list of the world's top 75 commercial centres, as per the 2008 'Mastercard Worldwide Centres of Commerce Index'.

Stock Markets

The year 2007 saw Indian stock markets scaling new peaks, with the popular sensex crossing 21,000 and Nifty crossing the 6,000 mark for the first time. It was the third best performing market in the world with a dollar return of 71.23 per cent. The popular Bombay Stock Exchange (BSE) benchmark index, Sensex, posted its highest ever absolute gain of 6500 points in over two decades.

This performance of Indian stock markets has led to the total investor wealth of Bombay Stock Exchange (BSE) surging to a record high of over US$ 1.7 trillion, with an average increase of over US$ 10.18 million in every minute of trading during 2007. At the end of 2006, the total market capitalisation stood at US$ 812 billion.

Simultaneously, the National Stock Exchange (NSE) has climbed to the top spot in stock futures contracts and number-two slot in the index futures segment in the world.

According to Ernst & Young, India was also the fifth largest market in terms of number of IPOs and seventh largest in terms of the proceeds for the year. Indian companies raised a whopping US$ 11.48 billion through public issues in 2007, which is 83 per cent higher than US$ 6.28 billion mobilised in 2006.

The robust performance of the Indian stock markets can also be seen in the huge increase in the funds mobilised by the corporate India. During 2007-08, India Inc mobilised a whopping US$ 8.13 billion through issue of shares on rights issue, which is almost an eight-fold increase over US$ 926.32 million raised in 2006-07. In fact, the mobilisation of the funds in 2007-08 was more than the combined mobilisation of the preceding 12 years.

The flurry of fund raising activity by the companies on the Indian stock exchange has continued in 2008. Fund raising by India Inc through IPOs rose by a whopping 62 per cent since the beginning of 2008 to 29 May, 2008 to US$ 4.2 billion, against US$ 2.6 billion during the same period in 2006, according to global deal data provider Dealogic. Significantly, fund mobilisation during the first quarter of 2008 is the second highest for a quarter in the Indian capital's history.

Private Equity

The year 2007 was a watershed for private equity market, which has emerged as the most preferred mode of fund mobilisation for India Inc. The capital mobilised through this route was higher than the funds mobilised through IPOs, follow-on issues and qualified institutional placements put together.

India, in fact, topped the Asia private equity chart for the first time in 2007 in terms of aggregate deal value. According to Grant Thornton, a total of US$ 17.14 billion was mobilised through 386 deals by India Inc in 2007, compared to US$ 7.8 billion in 2006. Real estate, infrastructure, banking and financial services were the dominant sectors attracting about 55 per cent of the total private equity investments.

The growth continues apace in 2008. The total number of PE deals during the first five months of 2008 stood at 170, with an announced value of US$ 6.39 billion as against 159 deals amounting to US$ 4.97 billion during the corresponding period in 2007. India is among the top 10 countries in terms of value of private equity deals across the world, as per the global deal tracking firm Zephyr.

Mutual Funds

India is also one of the fastest growing markets for mutual funds industry attracting a host of global players. The combination of increasing number of fund houses (along with new schemes) and increase in the number of people parking their savings in mutual funds has resulted in total funds mobilisation, increasing at a whopping 124.93 per cent during 2007-08 to stand at US$ 1.11 trillion as against US$ 485.13 billion in 2006-07.

The average assets under management (AUM) of the mutual fund industry for March 2008 stood at US$ 134.76 billion as against US$ 89.86 billion at the end of 2006, representing a year-on-year growth of 49.96 per cent.
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Re: Report on Financial Services - October 17th, 2008

With accelerating investor interest shown in mutual fund segment, the number of investor folios of the MFs increased to 43.7 million at the end of March 2008, from 27.9 million at the end of January 2007 (a growth rate of 54 per cent). Simultaneously, there has been an increase in the number of distributors to 72,108 (excluding 107 banks) till March 2008 from 54,000 in January 2007.

The growth momentum of the mutual fund industry continues in the new fiscal year (2008-09). Fund mobilisation has increased by a whopping 77.4 per cent to US$ 327.93 billion during April-June 2008, compared to US$ 184.81 billion in April-June 2007. Consequently, average AUM of the mutual fund industry has increased to US$ 132.33 billion for June 2008, against US$ 99.86 billion in the corresponding period in 2007.

Looking ahead, the Indian mutual funds market is estimated to grow at a compounded annual growth rate (CAGR) of 18 per cent in the next five years, with the country's mutual funds assets expected to more than double to US$ 298.73 billion by 2012, according to a report by US-based financial services research and consulting firm Cerulli Associates. Consequently, there would be an entry of about 15 new fund houses, in addition to the 33 fund houses already in operation by the end of 2007.

Banking

The burgeoning economy, surging foreign investment, financial sector reforms and a favourable demographic profile has led to the Indian banking industry emerging as one of the fastest growing in the world. The industry's business grew at a CAGR of 20 per cent from US$ 471.11 billion as of March 2002 to US$ 1175.61 billion by March 2007. Significantly, the newly licensed private sector business has grown almost twice (1.75 times) as that of banking industry as a whole, leading to their share in total banking business increasing from 9 per cent in 2001-02 to 16 per cent in 2006-07.

The growth has continued with the total banking business (aggregate deposits + bank credit) growing to US$ 1326.88 billion. While the aggregate deposits of all scheduled banks in India grew by 22.18 per cent to US$ 763.22 billion, total bank credit rose by 21.06 per cent to US$ 563.22 billion.

This boom in the banking industry has propelled nine Indian banks to the list of top 50 Asian Banks, as per this year's Asian Banker 300 report. Similarly, seven Indian microfinance institutions find place in Forbes list of World's Top 50 Microfinance Institutions.

Despite such impressive performance, the potential for further growth is huge considering the fact that India has second largest financially excluded households (about 135 million) in the world. In fact, according to Boston Consulting Group, India is the fastest growing incremental revenue pool in the world.

Insurance


The liberalisation of the rules for the entry of domestic and foreign players has had a favourable impact on this sector, leading to premium collections growing by 19.9 per cent in 2006-07, compared to the world average of 2.9 per cent. Consequently, India became the 15th largest insurance market from 19th in 2005.

India has also increased its share in the world life insurance business from 1.68 per cent in 2006 to 1.97 per cent in 2007, with US$ 47.1 billion premium collections in 2007 as against US$ 37.22 billion in 2006.

This growth looks particularly impressive when seen against the fact that the combined penetration of both life and non-life is less than 2 per cent of the GDP compared to world average of 7.52 per cent. Clearly, the scope for growth is enormous.

And with increasing per capita income, insurance penetration and entry of new players, the Indian insurance industry is estimated to grow to US$ 50.9 billion by 2010 from around US$ 12.72 billion in 2007. Significantly, private players are likely to see a growth rate of 140 per cent during this period. At present, 26 per cent FDI is allowed in the insurance sector and the limit is proposed to be increased to 49 per cent soon. The general industry consists of 14 players. The 14 non-life players consistently grew business by 12.6 per cent to collect US$ 6.65 billion in fresh premium in 2007-08 as against US$ 5.89 billion in 2006-07. A new player, Shriram General Insurance Company Limited, has also made its debut this year and some more players are also expected to enter the general insurance market.

Debt Market

While the Indian financial sector was dominated by the stellar performance of the stock markets, the Indian debt market had its own share of excitement. India Inc increased its collections through the debt market by as much as 53.84 per cent to US$ 20 billion in 2007 from US$ 13 billion in 2006.

According to a report by Goldman Sachs, with insurance, mutual funds and pension sector experiencing rapid growth, India's debt market is estimated to grow four-fold, from about US$ 400 billion (45 per cent of GDP) in 2006 to about US$ 1.5 trillion (about 55 per cent of GDP) by 2016.

Significantly, the non-government sector is expected to grow from US$ 100 billion in 2006 to US$ 575 billion in 2016, increasing its share in GDP from 10 per cent to 22 per cent.


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Re: Report on Financial Services - October 26th, 2009

Thanks a lot for the information........l.........................
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Re: Report on Financial Services - November 24th, 2011

thanks for the info dude....
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