Financials will boom because of increased savings!

Message

   As the rate of savings increases from 23% of GDP to 33% of GDP the incremental money will help fuel aggressive growth in a lot of the financial plays. At 33% of GDP Indians save around Rs 12 lac crores per year and this is no small figure because 12 lac crores was our a few times market cap when the Bull market started. 

The obvious gainers would be the financials that have non cyclical business models and cater to the middle and upper end of the population. As people save more they would keep more money in banks, take more loans, invest more in stocks, MFs, Insurance products etc. 

All this could make companies with large networks a very interesting play. Now assume that there are software guys who get monthly salaries of Rs 30k; next year this salary gets revised to Rs 36k so immediately his banker starts to get more deposits because people transact more from their bank accounts; this will propotionately increase his loan requirements; credit card spends  since all this is related to income. So Banks as a sector have a classic inbuilt ability to match up with the economic growth year on year.

Similarily with the employers also the same situation will repeat itself and more often then not the incremental cash flow wil either be retained or invested in financial products which in turn increases the fee based income of financial intermediaries.

Since it the services segment is growing at around 13% and an inflation of 4% these intermediaries who not lose market share should grow at 17% per anum on topline even if they do not expand their network. 

Large Private Banks who are increasing marketshare and also their network should tweak the growth rates upwards from what they have been achieving over the past 5-10 years.

The only caveat is to be with non cyclical intermediaries because in case of a market downturn business verticals dependent on the stock markets do suffer from acute fall in revenues.