Financials will boom because of increased savings!
Printed From: The Equity Desk
Category: Investment Ideas - Creating winning portfolios!
Forum Name: Sector talk
Forum Discription: Discussion on sectors with regard to specific matters. We will be discussing the various sectors of the economy and how they would perform. Basically a top down approach.
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=1519
Printed Date: 04/Apr/2025 at 8:46am
Topic: Financials will boom because of increased savings!
Posted By: basant
Subject: Financials will boom because of increased savings!
Date Posted: 06/Jan/2008 at 10:11am
|
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.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Replies:
Posted By: deveshkayal
Date Posted: 06/Jan/2008 at 10:38am
|
While banks will grow, no doubt, but brokerages growth will be more than the banks. Most of the brokerages are diversifying in other areas. India Infoline expects that its broking share will come down from 56% currently to 35% in 2-3 years. It makes sense to buy diversified financial services company like Indiabulls and India Infoline. Edelweiss is prone to downturn in equities.
I know many software guys who are deploying more money in stocks than in deposits. ------------- "You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett |
Posted By: shetty
Date Posted: 06/Jan/2008 at 11:05am
| I thought Indiabulls and India infoline would be cyclical as they are dealing with the Subprime market here. As for their brokerage it deals with day traders. |
Posted By: PrashantS
Date Posted: 06/Jan/2008 at 11:08am
|
I know many software guys who are deploying more money in stocks than in deposits. ______________________________ not only software guys all office goign people are doing that .I hope they do some work also coz some guys are trading in the office  |
Posted By: catchsudipto
Date Posted: 06/Jan/2008 at 11:23am
|
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.
--------------------------------------
I hope the same theory can be applied to small Private banks also who are increasing there network rapidly. ------------- Make your Life as simple as possible. |
Posted By: johnnybravo
Date Posted: 06/Jan/2008 at 11:40am
Sirji 20% hike?? appke muh mein ghee-shakkar! |
Posted By: johnnybravo
Date Posted: 06/Jan/2008 at 11:44am
You r right Devesh, But I guess its the general public opinion abt stk mkts that has changed. People who have a missed out feeling, are jumping and pumping money day in and day out. In my office, I see a lot of people who actively trade! (these brokerages icicidirect, indiabulls, kotak need to change their screen colors - its so bright that its easily noticeable!) |
Posted By: nikhil090
Date Posted: 07/Jan/2008 at 12:40pm
|
Good perspective basantjee..
Full service banks like Kotak seems to be the best suited to ride this wave. They are present in the fastest growing/agressive part of the fianancial services, - viz research, IB, broking etc coupled with more steady and balancing bank operations..
The other to match them can be ICICI but they are way too agressive and prefer size over margins.
|
Posted By: sayonee
Date Posted: 07/Jan/2008 at 4:21pm
| is it then fair to say that universal banks like ICICI and SBI - whose portfolio includes retail banking, corporate banking, insurance, broking, AMC etc. - will be in an advantageous position to leverage on this savings glut |
Posted By: Ajith
Date Posted: 07/Jan/2008 at 4:41pm
|
Mr. Basant,I too was struck by this piece of statistics I read last week about the rise in savings from 23 to 33 percent in the last 6 years.Rise in corporate savings iand government dissavings(cut in expenditure) were explanations.This too will help banks directly and as you said perhaps the steady growers we all know about and the finance stocks in general will do well. Side by side even private consumption is growing(helping domestic consumption)which is offset by the rise in corporate savings. ------------- Ajith |
Posted By: basant
Date Posted: 07/Jan/2008 at 4:48pm
The spill over gets more into the non rural belt so the bigger private banks would grow faster - at least that is what I am betting on also their business model is non cyclical unlike the models of Kotak Bank or the others which are dependent on the the capital markets.But yes, if the capital markets do well the returns may be higher in business models that are linked to equity markets.
I recommend, hold and prefer Axis Bank and then HDFC bank. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: nitin_jagtap
Date Posted: 07/Jan/2008 at 5:54pm
Friends another inetresting article on the wealth management space.
|
|||||||||||||||
//--> Posted By: getmanoj
Date Posted: 07/Jan/2008 at 9:20pm
|
For some time now, the talks are going about investing a small % of Employee Provident Fund to market linked investments. The total amount these EPF have is too big. Even if a small % of that amount comes to market, It might add some value for Financial companies. I think SBI will gin more in this case. Manoj |
Posted By: deveshkayal
Date Posted: 07/Jan/2008 at 9:38pm
|
I think SBI will gin more in this case. ----------------------------------------------------------- SBI MF and UTI MF will be the biggest gainers from Govt. money deployment in equities. ------------- "You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett |
Posted By: nitin_jagtap
Date Posted: 07/Jan/2008 at 7:51am
|
Yes the talk about PF money coming into the markets has been doing the rounds for quite some time now , even if say 5% of the money comes it will be a big push to the liquidity in the market , my sense is that select PSU stocks will be gainers once PF money comes into the market. ------------- Warm REgards Nitin Jagtap |
Posted By: smartcat
Date Posted: 07/Jan/2008 at 10:58am
|
Inspite of savings growth, pure banks (including private sector) however cannot match the returns of companies in upcoming sectors like retail, infrastructure etc space. A pure bank is one that accepts deposits (liabilities) and gives loans (assets), with no presence in other financials like brokerages, AMC, insurance, investment banking etc. The problem is - Indian savings mostly goes into fixed income securities like Fixed deposits and savings accounts. This will only help pure banks garner deposits easily.
The loan growth will be there, but it won't be very high. If a software dude has Rs. 3 lakhs in fixed deposits that gives 8% PA, he would not take a Rs. 40,000 LCD television on 15% PA interest.
Corporate lending will be easier for banks, but I would rather invest in a company that takes the loan rather than a company that gives the loan. Because obviously, the company that takes the loan (say an airport or retail company) will earn more returns from the investment.
That's probably one of the reasons why HDFC Bank has never been a real outperformer. There are always sectors in the index that will grow faster than HDFC Bank. Also, most of the public sector banks are pure banks (deposits & loans, nothing else) - that's why they hardly grow at 15 - 20% per annum.
The real money is in a diversified bank with presence in brokerages, AMC, insurance etc. Even if a small percentage of the saving population shifts their preferred investment from fixed deposits, these diversified banks are going to make tons of money and outperform most other sectors.
|
Posted By: Shreyas
Date Posted: 08/Jan/2008 at 1:38pm
|
Recd today via mail :
The mandatory licensing requirement for Indian banks to open branches may be done away with. The department of financial services is taking up the matter with the Reserve Bank of India as banks are no more shying away from opening branches in semi-urban and rural areas.
The likely relaxation, however, will not apply to foreign banks. "There is a case made out for dispensing with the mandatory licensing requirement with certain transparent safeguards to ensure an equitable distribution of bank branches in the urban and rural areas," an official source said. RBI might make it mandatory for banks to open one rural or semi-urban branch for every new urban branch that is opened, added the source. Currently, opening of new branches and shifting of existing ones are governed by the provisions of Section 23 of the Banking Regulation Act, 1949. Under the provisions, without the prior approval of RBI, banks cannot open a new place of business in Since 2006, RBI has approved the opening of new branches only on the condition that at least half of such branches are opened in under-banked areas as notified by the regulator. Citing a recent speech of RBI Governor Y V Reddy that "many banks now find that branches in semi-urban and rural areas are also commercially viable", official sources said the entire policy followed by RBI on opening new branches needed to be revisited. At present, RBI gives aggregate approvals for opening branches and ATMs annually through extensive consultation with each individual bank and authorisations are valid for one year. If RBI wished to keep an overall cap on the number of bank branches that were opened annually by each bank, the number of bank branches that were opened annually by each bank could be defined as a percentage of their existing number of branches, the source said. Many public and private sector banks have been demanding the removal of the licensing system, which comes in their way to expand organically in a rapid manner. The department has sought views from public sector bank chiefs in this regard. Currently, there around 65,000 bank branches in the country, of which 50,000 belong to 28 public sector banks. |
Posted By: Ajith
Date Posted: 08/Jan/2008 at 1:52pm
|
Smartcatjee, Excllent piece of logic.Axis,ICICI Bank,Kotak etc become preferred compared to HDFC Bank though ofcourse the latter has its unique strengths.Edelweiss-valuation may be justified. I think trend-catching(top-down) along these lines across various sectors will throw up good investment ideas. ------------- Ajith |
Posted By: totalequities
Date Posted: 08/Jan/2008 at 6:50pm
| one should not forget IDFC. It has presence in brokerage business through SSKI (well known instituional broker based in Mumbai). |
Posted By: aloksahi1971
Date Posted: 08/Jan/2008 at 7:14am
|
I do understand that there is going to be a lot more disposable income iin the hand of the urban middle class than before but is it going to be channeled to the EQUITY Market. I sincerely belive that most of this incremental income will be fuled into consumption and mortgage payment with ever rising property prices.
Most Dmat account owners may be marginal momentum players and hibernate with the fist sign of a crack in the market.The most sustainable way of chanelising mass money into the market will have to be the Mutual Fund route and ULIP route. It is in this space that Private banks steel a march over others .Incentivising Public Sector employes to sell eqity products may help to.
|
Posted By: tigerz_style
Date Posted: 14/Jan/2008 at 5:40pm
| how do you see IFCI then |
Posted By: basant
Date Posted: 14/Jan/2008 at 6:06pm
|
Avoid. This stock is for people who stay in Delhi and closer to Parliament Street!
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: tigerz_style
Date Posted: 14/Jan/2008 at 6:09pm
|
Posted By: deveshkayal
Date Posted: 16/Jan/2008 at 2:38pm
|
HDFC Bank and some mutual funds will be the biggest beneficiary of Reliance Power IPO.
---------------------------------------------
Given the sheer size of the offer and a huge demand on Day 1, the Reliance Power IPO is expected to generate a big float for bankers to the issue.
If the Rs 11,000-crore plus offer meets with overwhelming response from retail investors in next few days, as expected, it will lead to a situation where there will be a large amount of refundable cash available with banks acting as collection and refund banks. This surplus money can be used for lending in the short-term money market instruments or for deploying in the inter-bank call lending. Bankers like HDFC Bank will be required to process a mountain of applications, payments and refund orders. The bank is one of the collection banks and the sole refund bank for the Rel Power issue. "Overall, we expect the IPO to attract more than 30 lakh retail applications. HDFC Bank will act as a collecting bank in 37 centres out of 135 across the country. So, we will process about 8-10 lakh applications" said HDFC Bank head-wholesale banking operations and cash management Bhavesh Zaveri. About 1,200-1,300 people will be involved in processing of applications, which will not be an easy task given that 2-3 immediate banking holidays are lined up in centres like Chennai and Kolkata, he said. HDFC Bank will have a large amount of refundable money at its disposal for some days, which can be put to use by lending in call money market, say bankers. The list of the other bankers to the R-Power issue includes ABN Amro Bank, Axis Bank, HSBC, ICICI Bank, Kotak Mahindra Bank and Standard Chartered Bank. Being a banker to new issues is a lucrative business, given that an increasing number of companies are floating large-sized offers. In the past, companies like ICICI Bank and DLF had offered bankers similar opportunities. In case of ICICI Bank's Rs 10,000 crore follow-on issue, the bank itself chose to be the sole banker to the issue in order to get the benefit from the float. Similarly, in the forthcoming rights issue, State Bank of India, the country's largest bank, has decided to be the banker to the issue. "We may also appoint our associate banks as bankers, but we are unlikely to appoint any other competing bank," said senior bank officials. Even as there may be several bankers to the issue, only one bank, which maintains an escrow account, will benefit with the float. This is because all the other banks are required to transfer the funds to a single bank which maintains the escrow account for the company. This bank will also be required to refund the money to subscribers. Banks which maintain the escrow account enjoys the float for nearly 15 to 20 days. Market sources say some private banks which are active in stock market may either park the funds in capital market or use the money for IPO financing. But most banks use the fund in short term money market instruments specially mutual funds. (ET) ------------- "You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett |
Posted By: deveshkayal
Date Posted: 07/Feb/2008 at 11:08am
|
CSO projects savings to grow to 37% of GDP, a historic high. ------------- "You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett |
Posted By: CHINKI
Date Posted: 07/Feb/2008 at 11:29am
|
Devesh, what is this CSO stands for?? ------------- TOUGH TIMES NEVER LAST, BUT TOUGH PEOPLE DO |
Posted By: deveshkayal
Date Posted: 28/Feb/2008 at 9:19am
|
Let me put my perspective on brokerages. If one sees the avg. daily volumes in May'06 which was around Rs.46000 crs and this time, its around Rs.70000 crs. So the volumes have increased despite severe fall this time compared to May'06. Sameer Gahlaut of Indiabulls sees Sensex at 35000 by 2012, then how can one not expect significant returns over 3-5 years. I am more bullish on Capital markets related companies than pure banks from 3 years perspective. ------------- "You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett |
Posted By: Naren
Date Posted: 01/Mar/2008 at 8:11am
|
Deveshji,
Can I add indiabulls at these levels? Do you think the Asset management approval will act as a Tigger?Appreciate your inputs.When is ISL expected to list ?
|