What are the Components of Financial Services sector in India. Quick Review about the Growth Prospects of Financial Services in 2023- 27

The financial services industry in India is on a constant expansion, in terms of growth in existing financial services firms as well as new entities emerging in the market. The financial services industry comprises of various key subsegments. The Financial Services spread across mutual funds, stockbrokers, wealth managers, pension funds, insurance companies, commercial banks and financial advisory companies.  The scale of operations range  from small domestic players to large multinational companies. The clientele falling under Financial Services are public organizations, individuals, and private businesses. In summary, the services can be classified as follows.

Capital MarketsAsset managementBrokingWealth managementInvestmentBankingInsuranceNBFCsAsset financingInvestment managementLoan

Here is a quick overview of a key players in the industry.

Bajaj Finance Ltd (BFL)

A subsidiary of Bajaj FinServ Ltd. It is a deposit taking Non-Banking Financial Company registered with the Reserve Bank of India (RBI) and is classified as an NBFC-Investment and Credit Company (NBFC-ICC). BFL is engaged in the business of lending and acceptance of deposits. It has a diversified lending portfolio across retail, SMEs, and commercial customers with significant presence in both urban and rural India. It accepts public and corporate deposits and offers variety of financial services products to its customers. The products and services offered by BFL are consumer lending, SME lending, commercial lending, rural lending, public and corporate deposits, partnerships and services.

IIFL Finance

IIFL Holdings Limited (formerly known as India Infoline Limited) is the apex holding company of the entire IIFL Group, which is a financial services company in India, promoted by first-generation entrepreneurs. They have a diversified business model that includes credit and finance, wealth management, financial product distribution, asset management, capital market advisory, and investment banking.

HDFC AMC

HDFC AMC is among India’s most profitable and preferred mutual fund managers. The company offers a comprehensive suite of saving and investment options across varied asset classes to its retail and institutional customers. For an ever‑growing customer base that comprise individuals, families, corporates, and institutions, the company provide a one‑stop solution for investments that help them improve income and create wealth. The company’s Product Suite includes Equity‑oriented schemes/ portfolios and Debt-Oriented Schemes. Others includes Arbitrage funds, Exchange Traded Funds (ETF) and Fund of Funds (FoF).

ABSL AMC

Aditya Birla Sun Life AMC Limited (ABSLAMC) ranked as the largest non-bank affiliated AMC and fourth largest AMC in India managing Assets under management, under its suite of Mutual Fund, Portfolio Management Services, Alternate Investment Funds, Offshore and Real estate offerings. It has geographically diversified Pan-India distribution presence of over 280 + Location and Subsidiaries in Singapore, Dubai, and Mauritius.

Authum Invest

Authum Investment & Infrastructure Limited is a Public Limited Company. The company is a registered NBFC engaged in the business of making investments in financial instruments like acquisition of shares & securities real estate and financing of loans. The Company has also been engaged in structured financing, fixed returns portfolio, secured lending and equity investments in emerging companies.

Industry Performance

The performances of key companies in the industry give indications that the industry is profit making, and would be growing in the coming years.  The reported margin of the key players was around 44% by taking into consideration of the last 3 years data. Details are as follows.

Companies

Net Margin

EBITDA/Sales

Bajaj Finance Ltd

22.80%

32.10%

IIFL Finance

18.20%

26.30%

HDFC AMC

57.30%

78.50%

ABSL AMC

47.90%

66.50%

Authum Invest

73.70%

91.00%

Industry Margins

44.00%

58.90%

 

Industry Trends

As a whole, multiple metrics associated with the industry are indicating growth prospects for the industry. Here are the key metrics:

The Indian equity market is expanding in terms of listed companies and market capitalization and it will widen the playing field for brokerage firms.Sophisticated products segments are growing rapidly, reflected in the steep rise in growth of derivatives trading.With the increasing retail penetration, there is an immense potential to explore the untapped market.Growing financial awareness is expected to increase the fraction of population participating in this market.Rising scope for wealth management.Insurance to benefit from widening reach across segments.

The industry is attracting major investments as follows.

India’s PE/VC investment were at US$ 77 billion in 2021, which was 62% higher than 2020.Under the Union Budget 2022-23, the government allocated Rs. 1,538,779.45 crore (US$ 204.36 billion) to the Ministry of Finance which is expected to strengthen multiple financial instruments and industry

The government initiates are noteworthy which will inspire further confidence about the growth prospects of the industry.

An Asset Reconstruction Company Limited and Asset Management Company will be formed to consolidate and take over existing stressed debt and manage and dispose assets.An institutional framework will be created for the corporate bond market to inculcate confidence among participants and augment liquidity of secondary markets.International Financial Services Centre (IFSC) in GIFT City (Gujarat International Finance Tech City), the budget proposed more tax incentives and investment opportunities.

 

Meanwhile, while analyzing the performance of the contributing companies for the last three years, we can find that the sector witnessed compounded annual growth rate (CAGR) of 31.1% at the end of 2022. Details are as below.

 

Companies

Compounded Annual Growth Rate

Bajaj Finance Ltd

22.74%

IIFL Finance

84.3%

HDFC AMC

8.9%

ABSL AMC

6.9%

Authum Invest

32.6%

Industry Margins

31.1%

 

With the current trends in the global financial markets and various investment avenues arising in the domestic market, the Indian financial services sector expects a huge growth opportunity. Additionally, the growing government initiatives combined with the growth momentum  as reported in the last three years are expected to boost the sector’s growth. Overall, the industry is expected to grow higher than the current reported average CAGR of key players. 

Assuming there would be 10% more than the reported growth, the industry is expected to exhibit CAGR of 34.21%  in the next five years from 2023 to 2027.

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