Post on 12-Sep-2021
transcript
FINANCIAL SERVICESNovember 2010
2
Advantage India
Market overview
Investments
Policy and regulatory framework
Opportunities
Industry associations
Contents
FINANCIAL SERVICES November 2010
3
Advantage India
Advantage
India
Modern
technology
Availability of modern infrastructure and technology, i.e., electronic transfer,
T+2 settlement, dematerialisation of securities, rolling settlements, etc.
Tremendous
growth
potential
The Indian financial market is
growing rapidly, with significant
potential for further growth.
( NSE is ranked 17th in terms of
value of shares traded in the
world during 2010 till October
end)
Strong regulatory
framework
India has a strong financial
regulatory system, administered
by Reserve Bank of India (RBI)
and supported by regulatory body
such as Securities and Exchange
Board of India (SEBI), which
govern capital markets and mutual
funds, among other financial
institutions.
High saving rate
India’s high savings rate offers significant opportunity to channelise resources into the
financial markets. RBI projects India’s gross domestic savings to be 34 per cent in
FY11, which is likely to increase to 35.3 per cent by FY12.
One of the
fastest-growing
economies in
the world
India is among the fastest-
growing economies in the world,
with a real GDP growth rate of
7.4 per cent in 2009–2010.
Favourable
demographic
profile
India has a favourable demographic
profile with a large segment of the
population under 30 years.
Sources: EY research, RBI website, www.rbi.org.in, accessed 2 December 2010
Financial Services November 2010
ADVANTAGE INDIA
4
Advantage India
Market overview
Investments
Policy and regulatory framework
Opportunities
Industry associations
Contents
FINANCIAL SERVICES November 2010
5
Capital markets Retail brokerage
Non-banking
financial
companies
Microfinance
Financial
services
There are more
than 8,000 brokers
in addition to over
75,000 sub-brokers
registered with
SEBI.
India has 19
recognised stock
exchanges. The NSE
and the BSE are the
main exchanges, with
the NSE contributing
more than 75 per
cent of the turnover.
More than I2,500
NBFCs are
registered with the
RBI. More than 80
per cent of the
equipment hire
purchase segment
is financed by them.
The microfinance
segment in India is
witnessing rapid
growth. These
institutions reach out
to the grass-root level
and have fewer defaults
in comparison to
commercial banks.
Mutual funds
Mutual funds in
India had assets
under management
to the tune of
US$ 155 billion
(INR 7,132 billion)
as of September
2010.
Capital marketsPortfolio/asset
managementNBFCs and MFIs
Sources: SEBI annual report 2009–10; AMFI website, www.amfiindia.com,
accessed 30 November 2010; RBI website, www.rbi.org.in, accessed 30
November 2010
NSE – National Stock Exchange
BSE – Bombay Stock Exchange
SEBI – Securities and Exchange Board of India
MFIs – Microfinance institutions
Market overview — key segments
MARKET OVERVIEW
Financial Services November 2010
6
Capital markets … (1/3)
Market capitalisation of Indian companies on the stock exchange has more than tripled between 2004–05 and 2009–2010.
• The NSE is the largest stock exchange in India, followed by the BSE.
Source: NSE factbook 2010, National Stock Exchange of India
Growth in market capitalisation of Indian companies
MARKET OVERVIEW
113
258
362
631
773
1,215
568
1,331
0
200
400
600
800
1,000
1,200
1,400
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
(in
US$
bill
ion
)
Financial Services November 2010
7
Capital markets … (2/3)
• The NSE ranks fourth among the top stock exchanges in the world, with respect to number of trades in equity shares.
• The cumulative net investments by FIIs was US$ 82 billion (INR 3,934 billion) between 1992–93 and 2009–2010.
• Foreign Institutional Investors (FII) investment in India in 2009–2010 was close to US$ 23 billion (INR 1,102 billion).
Sources: National Stock Exchange website, www.nseindia.com, accessed 30 November 2010; SEBI Annual Report 2008–09; SEBI bulletin, October
2010; World Federation of Exchanges statistics, WFE website, www.world-exchanges.org, accessed 30 November 2010
NSE — average daily turnover NSE — number of listed companies
MARKET OVERVIEW
1.03
1.79
2.22
2.85
0.00
0.50
1.00
1.50
2.00
2.50
3.00
2004-05 2006-07 2008-09 2010-11 (Upto Sep)
970
1228
1432 1512
0
200
400
600
800
1000
1200
1400
1600
2004-05 2006-07 2008-09 2010-11 (Upto Sep)
Financial Services November 2010
(in
US$
bill
ion
)
8
Capital markets … (3/3)
4371
6857 6812
7729
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
March 2007 March 2008 March 2009 September 2009
• There are18,511 brokers (cash segment, derivative
and currency derivatives) and 82,278 sub-brokers
(cash segment), registered with the SEBI as of 31
October 2010.
• Market share of the top 10 brokers in India grew
from 12 per cent in 2001–02 to 23.5 per cent in
2009–2010.
• Several foreign companies are entering the retail
brokerage market.
Sources: *EY research, data compiled for seven brokerage houses – India Infoline Ltd, Motilal Oswal Financial Services Ltd, Edelweiss Capital
Ltd, Emkay Global Financial Services Ltd, Religare Enterprise Ltd, Kotak Securities Ltd and Sharekhan Ltd; SEBI annual report 2009-10, SEBI
bulletin, November 2010
Branch network of top brokerage houses*
MARKET OVERVIEW
Financial Services November 2010
9
Sources: AMFI website, www.amfiindia.com, accessed 30 November
2010; SEBI Annual Report 2008-09; SEBI Bulletin October 2010
• Gross mobilisation of resources by all mutual funds in India was US$ 2,087 billion (INR 100,190 billion) in 2009–2010 in comparison to US$ 1,130 billion (INR 54,263 billion) in 2008–09.
• Several large banks and financial institutions are awaiting approval from SEBI to launch asset management services.
Portfolio/Asset management — mutual funds
(in U
S$ b
illio
n)
Mutual fund industry – Assets Under Management
(AUM)
MARKET OVERVIEW
48
68
105
87
128137
0
20
40
60
80
100
120
140
160
Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Sep-10
Financial Services November 2010
10
NBFCs — niche players, niche market
NBFC-ND
NBFC-D
• These NBFCs are non-deposit companies. There are more than 12,000 NBFCs registered
with the RBI as of June 2010. Kolkata has the highest base with over 5,000 companies.
• These NBFCs are public deposit companies. Three hundred and eighty such NBFCs are
registered with the RBI. Some of the key NBFCs in this category include Manappuram
General Finance and Leasing company, Bajaj Finance, Sriram Transport Finance, Sundaram
Finance, etc.
• NBFCs are prominent players in the transport finance business.
• More than 80 per cent of equipment leasing and hire purchase activity in India is financed by NBFCs.
Sources: ―NBFCs, now an essential component of financial sector,‖ The Economic Times, dated September 24, 2009; RBI website, www.rbi.org.in,
accessed 20 January 2010; Report on trend and progress of banking in India 2009-10, Reserve Bank of India
MARKET OVERVIEW
Financial Services November 2010
11
0.18
2.4
4.79
0
1
2
3
4
5
6
2005 2009 2010 E
Microfinance institutions (MFIs)
• In India, most microfinance loans are between US$ 100 (INR 4,800) and US$ 415 (INR 20,000).
• In 2009, about 230 microfinance institutions added 8.5 million borrowers, taking the total number to 22.6 million.
• Microfinance institutions exist in many legal forms such as trusts, societies, non-profit companies and NBFCs.
(in U
S$ b
illio
n)
Sources: ―Micro finance lenders to stop multiple loans,‖ Mint, dated
December 17, 2009; Micro finance matters, August 2010 issue, Sa-
Dhan website, www.sa-dhan.net/Resources/MicroFinanceMatters-
AugustIssue.pdf, accessed 30 November 2010
Industry size
MARKET OVERVIEW
Financial Services November 2010
CAGR
93%
12
Key players — retail brokerage
Company Service offerings
India Infoline Investment Services Ltd
Online trading, equities, derivatives, commodity trading, initial public offerings (IPOs),
MF distribution, personal finance, market and sector research, investment banking and
wealth management.
Motilal Oswal Financial ServicesEquity, derivatives, portfolio management, online trading, insurance, commodity
trading, mutual funds and margin funding.
ICICIdirect.com
Online trading, market and research, personal finance and corporate services, equity,
futures and options (F&O), IPO, overseas trading, retirement solutions and life
insurance.
HDFC Securities Online trading, call and trade, IPO, equity and derivatives.
Religare Enterprises LtdEquities, commodity trading, personal finance, wealth management, asset management,
portfolio management services and insurance solutions.
Sharekhan.com Equities, commodity trading, portfolio management, MF distribution and research.
Emkay Global Finance Ltd Wealth management, e-broking, research, commodity trading, equities and derivatives
Indiabulls Securities Services Ltd Equities, research, commodities, MF distribution and derivatives
Edelweiss Capital Ltd Equities, F&O, research, asset management services and investment banking
Geojit BNP Paribas Financial Services Ltd Online trading, MF distribution, insurance services, PMS, IPO and property services
Sources: EY research, websites of brokerage houses
Note: This is an indicative list.
MARKET OVERVIEW
Financial Services November 2010
13
Key players — asset management companies (AMCs)
CompanyAUM, March 2009
(US$ billion)
AUM, September 2010
(US$ billion)
Reliance Mutual Fund 16.87 22.45
HDFC Mutual Fund 12.07 19.40
ICICI Prudential Mutual Fund 10.72 14.53
Franklin Templeton Mutual Fund 3.98 9.02
Bharti AXA Mutual Fund 0.04 0.11
Kotak Mahindra Mutual Fund 3.79 5.94
DSP Blackrock Mutual Fund 3.00 5.56
Sources: EY research, AMFI website, www.amfiindia.com, accessed 30 November 2010
Note: This is an indicative list.
• Players who have recently received approvals include Axis AMC, Motilal Oswal Financial Services and Peerless General Finance and Investment Company, among others.
• Players awaiting approvals include Bajaj Allianz, SREI Infrastructure Finance, etc.
MARKET OVERVIEW
Financial Services November 2010
14
Key players — NBFCs
Company Service offerings
Sundaram Finance Commercial vehicle finance, equipment finance, tyre finance, car and home finance.
Shriram Transport FinanceCommercial vehicle finance, construction equipment finance, working capital loan,
engine replacement loan and freight bill discounting.
Bajaj FinanceConsumer durable loans, loan against shares, personal loan, loan against property,
two-wheeler loan and IT product loan.
Tata Finance Commercial vehicle finance, car finance and used vehicle finance.
Magma Fincorp Commercial vehicle finance, construction equipment finance and car finance.
HDFCHousing finance services — home loan portfolio and home loan counselling, loans for
home extension, improvement and land purchase loan.
Mahindra FinanceTwo-and four-wheeler loans, utility vehicle loans, tractor loans and commercial
vehicle loans.
Manappuram FinanceLoan against gold, business loans, security loans — against government instruments
and insurance services.
Sources: EY research, Websites of NBFCs
Note: This is an indicative list.
MARKET OVERVIEW
Financial Services November 2010
15
Key players — MFIs
Company Legal status Lending model Number of branches
SKS Microfinance Ltd Public limited (NBFC) JLG2,029
(as of March 2010)
Share Microfin Ltd Public limited (NBFC) JLG, Individual1,117
(as of July 2010)
Bandhan Financial Services Private Ltd Private limited (NBFC) JLG1,551
(as of October 2010)
Cashpor Micro Credit Section 25 company JLG269
(as of August 2010)
Spandana Sphooty Financial Ltd Public limited (NBFC) JLG, Individual1,533
(as of March 2010)
Shri Kshetra Dharmathala Rural
Development ProjectTrust SHG 22
Grama Vidiyal Micro Finance Private Ltd Private limited (NBFC) JLG327
(as of September 2010)
Sources: EY research; Company websites
Note: This is an indicative list.
JLG-Joint Liability Group
SHG-Self Help Group
MARKET OVERVIEW
Financial Services November 2010
16
Advantage India
Market overview
Investments
Policy and regulatory framework
Opportunities
Industry associations
Contents
FINANCIAL SERVICES November 2010
17
Investments … (1/2)
• The services sector in India, including financial services, attracted the maximum FDI between April 2010 and September 2010, amounting to US$ 2,067 million.
• In 2010 (till 31 October 2010), the largest inbound deal in the sector was QInvest’s acquisition of a 25 per cent stake in Ambit Corporate Finance for US$ 54.17 million.
Cumulative FDI inflows
Period: April 2000–September 2010
SectorAmount of FDI inflows
(US$ million)
Services sector (including
financial services)25,668
% of total FDI 21
M&A scenario — details
Period : January 1, 2010–October 31, 2010
Deal type No of dealsTotal deal value
(US$ million)
Inbound 20 221.05
Outbound 7 269.31
Domestic 43 198.77
Sources: ―Fact Sheet On Foreign Direct Investment (FDI)‖, Department of Industrial Policy and Promotion, www.dipp.nic.in; Thomson One Banker
accessed on 8 November 2010; Ernst & Young analysis
INVESTMENTS
Financial Services November 2010
18
DealDate of
announcement
Announced total
value (US$ million)Acquirer name Target name
Target
country
Outbound 22-Feb-10 200.00Religare Enterprises
Ltd
Northgate Capital Group
LLCUnited States
Inbound 18-Feb-10 54.17 QInvest LLCAmbit Corporate Finance
Pte LtdIndia
Inbound 8-Jul-10 39.49 Undisclosed AcquirerVijay Associates(Wadhwa)
Constructions Pvt LtdIndia
Domestic 8-Apr-10 38.76Tube Investments of
India Ltd
Cholamandalam DBS Finance
LtdIndia
Inbound 29-Jul-10 33.74 Investor Group Muthoot Finance Ltd India
Outbound 15-Mar-10 32.98Hindustan
Construction Co LtdKarl Steiner AG Switzerland
Domestic 30-Jun-10 30.47 Sundaram Finance LtdSundaram BNP Paribas
Trustee Co LtdIndia
Outbound 25-Oct-10 27.06Farhat Developers Pvt
Ltd
Red Fort Capital
Management Co LLCMauritius
Domestic 5-Apr-10 26.58 Investor GroupBhartiya Samruddhi Finance
LtdIndia
Inbound 27-Mar-10 24.00ARIA Investment
Partners III LP
Equitas Micro Finance India
Pvt LtdIndia
Source: Thomson One Banker accessed on 8 November 2010
Investments (top 10 deals) … (2/2)
INVESTMENTS
Financial Services November 2010
19
Advantage India
Market overview
Investments
Policy and regulatory framework
Opportunities
Industry associations
Contents
FINANCIAL SERVICES November 2010
20
Policy and regulatory framework
Sector/Activity FDI Cap/Equity Entry route Other conditions
Financial infrastructure in securities market
a. Stock exchanges
b. Commodity exchanges
c. Depositories
d. Clearing corporations
49%(FDI+FII)
Investment by registered FII
under portfolio investment
scheme (PIS) will be limited
to 23% and investment under
FDI scheme limited to 26%
Foreign
Investment
Promotion
Board (FIPB)
Conditions apply as per
FDI Policy
NBFCs
a. Merchant banking and underwriting portfolio
b. Management services, investment advisory
services and financial consultancy
c. Stock broking, asset management
d. Venture capital
e. Custodial services
f. Factoring
g. Credit rating agencies
h. Financial leasing and hire purchase finance
i. Housing finance
j. Forex broking
k. Credit card business
l. Money changing business
m. Micro credit
n. Rural credit
100% Automatic Conditions apply as per
FDI Policy
Sources: Department of Industrial Policy and Promotion, www.dipp.nic.in, accessed 29 December 2009; Ernst & Young analysis
POLICY AND REGULATORY FRAMEWORK
Financial Services November 2010
21
Advantage India
Market overview
Investments
Policy and regulatory framework
Opportunities
Industry associations
Contents
FINANCIAL SERVICES November 2010
22
Opportunities – asset management … (1/2)
OPPORTUNITIES
Sources: SEBI annual report 2006-07; ―Reliance Cap joins race to manage private sector pension fund,‖ The Economic Times, 26 December 2008, via
Dow Jones Factiva; ―Direct Investment by Residents in Joint Venture (JV)/Wholly Owned Subsidiary (WOS) abroad,‖ 1 July 2008, RBI website,
www.rbi.org.in; ―Managers axe fees for PFRDA,‖ The Financial Express, 26 December 2007; ―Realty MFs: New avenue for retail players,‖ The Times
of India, 4 June 2008, via Dow Jones Factiva, (c) 2008 The Times of India Group
New product
segments
Growth potential
in related business
segments
Access to pension
fund money
Financial Services November 2010
• Guidelines have been released for real estate mutual funds (REMFs). The launch of REMFs will mark
the entry of asset management companies into an entirely new asset class.
• While Gold ETFs made a modest start, another relatively new product segment, international equity
funds, is growing rapidly. The limit for investment in foreign securities for domestic mutual funds has
been relaxed in a phased manner to US$ 7 billion.
• Portfolio management services (PMS): Currently, 31 AMCs offer PMS.
• Venture capital (VC) funds: Currently,12 AMCs have VC funds.
• Offshore funds: Five AMCs manage offshore funds.
• India-dedicated foreign funds: Several foreign fund managers, such as Janus, T Rowe Price, Wellington
Management, Aberdeen Asset Management and Fidelity, have expresses their plans to increase India
allocation. Of around 74 India-dedicated foreign funds, 36 are managed by 22 Indian mutual funds.
• Pension Fund Regulatory and Development Authority (PFRDA) has allowed fund managers to invest
up to 15 per cent of their assets in equities.
• This move is expected to allow asset managers to access long-term pension funds.
• The corpus, estimated to be more than USD417 million, will be split between LIC, SBI and UTI
Mutual Fund.
23
Opportunities – asset management … (2/2)
OPPORTUNITIES
1Data for 50 months (Feb–Mar 2005, May–Aug 2005, Dec 2005–Apr 2006, Jun–Jul 2006, Oct 2006–Apr 2007, Jun 2007, Nov 2007–Aug 2008, Oct–
Dec 2008, Feb 2009–Oct 2009, Jan 2010–July 2010)
Sources: SEBI annual report 2006-07; ―Market size report,‖ Karvy MFS website, www.karvymfs.com; ―Reliance Cap joins race to manage private
sector pension fund,‖ The Economic Times, 26 December 2008, via Dow Jones Factiva; ―Direct Investment by Residents in Joint Venture
(JV)/Wholly Owned Subsidiary (WOS) abroad,‖ 1 July 2008, RBI website, www.rbi.org.in; ―Managers axe fees for PFRDA,‖ The Financial Express, 26
December 2007; ―Realty MFs: New avenue for retail players,‖ The Times of India, 4 June 2008, via Dow Jones Factiva, (c) 2008 The Times of India
Group
Geographic
expansion
Managing assets of
the new pension
scheme (NPS)
Financial Services November 2010
• Although the industry has a presence in 150 cities, a major proportion of its investments is derived
from a few top cities, creating a high potential to tap other cities.
• The top seven cities have contributed 62 per cent of the total equity assets flowing into mutual
funds1.
• Growth potential through the expansion of geographic reach is significant.
• Recent advances in internet- and mobile-based payment systems have made it possible for AMCs to
expand their reach to remote areas in a profitable manner.
• Due to its low fund-management costs and government support, funds under the NPS are expected
to witness significant growth, thus presenting AMCs with the opportunity to manage these funds.
• Although only a limited number of AMCs manage NPS funds currently, more AMCs may be allowed
to participate once funds under the NPS increase.
24
Opportunities – micro finance
OPPORTUNITIES
Source: ―All Eyes on Asset Quality: Microfinance Global Valuation Survey 2010,‖ CGAP, March 2010, p.3
Market expansion
Alternate revenue
streams
Better funding
options
Financial Services November 2010
• Large proportion of India’s population has limited access to bank credit.
• Unorganised money lending is a general practice in micro-credit. High level of professionalism, more
transparency and low interest rates brought in by organised microfinance firms, is expected to
expand the market.
• The focus of microfinance sector is gradually shifting from not-for-profit and philanthropic
considerations to being positioned as a commercial and profit-driven sector.
• In order to develop into sustainable and profitable microfinance enterprises, NGOs and SHGs have
started focusing on alternate revenue streams besides their income from core microfinance
operations.
• This includes services such as micro insurance, money transfer, procurement and supply chain
financing for agriculture and allied activities.
• Besides investment by some established microfinance-focused funds (such as Unitus Equity Fund, Lok
Capital, Aavishkar Goodwell and the India Financial Inclusion Fund), the microfinance sector is
witnessing a significant increase in funding by some of the private equity players.
• These private equity investors are capable of infusing substantial capital.
• As of March 2010, microfinance-focused funds accounted for 30 per cent of total investment in the
Indian microfinance sector, while mainstream private equity contributed 69 per cent.
25
Opportunities – capital markets
OPPORTUNITIES
Source: ―F&O,‖ National Stock Exchange of India website, http://www.nseindia.com/, accessed 29 September 2010 ; Rakesh Mohan, ―Financial stability
CFSA report presentation,‖ Reserve Bank of India website, accessed on 20 September 2010; SEBI 2010 annual report; ―India : Domestic brokerages'
institutional mkt share to be 50% by 2015,‖ Euclid Infotech - Procurement News, 8 May 2010, via Dow Jones Factiva, Copyright 2010. Euclid Infotech
Pvt Ltd
Favourable growth
dynamics
Increasing number
of exchange-
traded
instruments
Bigger product
portfolio
Financial Services November 2010
• High GDP growth rate, driven by significant corporate earnings, is expected to create the need for
more intermediaries in the capital market.
• Lower penetration of the retail investor segment in the capital markets offers a significant
opportunity, given the increasing per capita incomes.
• Robust market and settlement infrastructure, coupled with surveillance systems in India could help
provide efficiencies in the operations of the equity markets.
• There has been a consistent increase in the stocks and indices traded on the derivatives segments.
NSE offers futures and options contracts on 202 stocks and 5 indices.
• Similarly, there the number of commodities available for trading has also been on the rise. Until
FY04, trading of only agricultural derivatives was permitted. However, with the incorporation of
national electronic exchanges, the government has steadily increased the basket of tradable
commodities on exchanges.
• Broking firms, which earlier used to offer only stock broking services, have now comprehensively
enlarged their offerings.
• This includes trading in several assets such as equities, commodities futures and exchange traded
funds, distribution of mutual funds, insurance, personal loans, etc.
• At the higher end, business segments such as portfolio management services, art advisory and asset
management are also gaining momentum.
26
Advantage India
Market overview
Investments
Policy and regulatory framework
Opportunities
Industry associations
Contents
FINANCIAL SERVICES November 2010
27
Industry associations
Association of Mutual Funds in India (AMFI)
706-708, Balarama
Bandra- Kurla complex
Bandra (east)
Mumbai – 400051
Phone: 91-22 -26590382/ 26590243
Fax: 91-22-26590235
INDUSTRY ASSOCIATIONS
Financial Services November 2010
28
Note
Wherever applicable, numbers in the report have been rounded off to the nearest whole number.
Conversion rate used: US$ 1= INR 48
NOTE
Financial Services November 2010
29
DISCLAIMER
India Brand Equity Foundation (IBEF) engaged Ernst &
Young Pvt Ltd to prepare this presentation and the same
has been prepared by Ernst & Young in consultation with
IBEF.
All rights reserved. All copyright in this presentation and
related works is solely and exclusively owned by IBEF. The
same may not be reproduced, wholly or in part in any
material form (including photocopying or storing it in any
medium by electronic means and whether or not
transiently or incidentally to some other use of this
presentation), modified or in any manner communicated
to any third party except with the written approval of
IBEF.
This presentation is for information purposes only. While
due care has been taken during the compilation of this
presentation to ensure that the information is accurate to
the best of Ernst & Young and IBEF’s knowledge and belief,
the content is not to be construed in any manner
whatsoever as a substitute for professional advice.
Ernst & Young and IBEF neither recommend nor endorse
any specific products or services that may have been
mentioned in this presentation and nor do they assume
any liability or responsibility for the outcome of decisions
taken as a result of any reliance placed on this
presentation.
Neither Ernst & Young nor IBEF shall be liable for any
direct or indirect damages that may arise due to any act
or omission on the part of the user due to any reliance
placed or guidance taken from any portion of this
presentation.
FINANCIAL SERVICES November 2010