FINANCIAL SERVICES November 2010 FINANCIAL SERVICES November 2010 Contents Advantage India Market overview Investments Policy and regulatory framework Opportunities Industry associations 2 ADVANTAGE INDIA Financial Services November 2010 Advantage India Availability of modern infrastructure and technology, i.e., electronic transfer, T+2 settlement, dematerialisation of securities, rolling settlements, etc. India has a favourable demographic Modern The Indian financial market is profile with a large segment of the technology growing rapidly, with significant population under 30 years. potential for further growth. Favourable Tremendous ( NSE is ranked 17th in terms of demographic growth value of shares traded in the profile potential world during 2010 till October end) Advantage India One of the India is among the fastest- India has a strong financial fastest-growing growing economies in the world, Strong regulatory regulatory system, administered with a real GDP growth rate of economies in framework by Reserve Bank of India (RBI) 7.4 per cent in 2009–2010. the world and supported by regulatory body such as Securities and Exchange Board of India (SEBI), which High saving rate govern capital markets and mutual funds, among other financial institutions. 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. Sources: EY research, RBI website, www.rbi.org.in, accessed 2 December 2010 3 FINANCIAL SERVICES November 2010 Contents Advantage India Market overview Investments Policy and regulatory framework Opportunities Industry associations 4 MARKET OVERVIEW Financial Services November 2010 Market overview — key segments Financial services Portfolio/asset Capital markets NBFCs and MFIs management Non-banking Capital markets Retail brokerage Mutual funds financial Microfinance companies India has 19 There are more Mutual funds in More than I2,500 The microfinance recognised stock than 8,000 brokers India had assets NBFCs are segment in India is exchanges. The NSE in addition to over under management registered with the witnessing rapid and the BSE are the 75,000 sub-brokers to the tune of RBI. More than 80 growth. These main exchanges, with registered with US$ 155 billion per cent of the institutions reach out the NSE contributing SEBI. (INR 7,132 billion) equipment hire to the grass-root level more than 75 per as of September purchase segment and have fewer defaults cent of the turnover. 2010. is financed by them. in comparison to commercial banks. 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 5 MARKET OVERVIEW Financial Services November 2010 Capital markets … (1/3) Market capitalisation of Indian companies on the stock exchange has more than tripled between 2004– 05 and 2009–2010. Growth in market capitalisation of Indian companies 1,400 1,331 1,215 1,200 1,000 773 800 631 568 600 (in US$ US$ (in billion) 362 400 258 200 113 0 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 • The NSE is the largest stock exchange in India, followed by the BSE. Source: NSE factbook 2010, National Stock Exchange of India 6 MARKET OVERVIEW Financial Services November 2010 Capital markets … (2/3) NSE — average daily turnover NSE — number of listed companies 3.00 2.85 1600 1432 1512 2.50 2.22 1400 1228 1200 2.00 1.79 970 1000 1.50 1.03 800 1.00 600 (in US$ US$ billion) (in 0.50 400 0.00 200 2004-05 2006-07 2008-09 2010-11 (Upto 0 Sep) 2004-05 2006-07 2008-09 2010-11 (Upto Sep) • 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 7 MARKET OVERVIEW Financial Services November 2010 Capital markets … (3/3) • There are18,511 brokers (cash segment, derivative Branch network of top brokerage houses* and currency derivatives) and 82,278 sub-brokers 9000 7729 8000 (cash segment), registered with the SEBI as of 31 6857 6812 October 2010. 7000 6000 5000 4371 • Market share of the top 10 brokers in India grew 4000 from 12 per cent in 2001–02 to 23.5 per cent in 3000 2000 2009–2010. 1000 0 • Several foreign companies are entering the retail March 2007 March 2008 March 2009 September brokerage market. 2009 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 8 MARKET OVERVIEW Financial Services November 2010 Portfolio/Asset management — mutual funds • Gross mobilisation of resources by all mutual Mutual fund industry – Assets Under Management funds in India was US$ 2,087 billion (INR (AUM) 100,190 billion) in 2009–2010 in comparison to 160 137 US$ 1,130 billion (INR 54,263 billion) in 2008– 140 128 09. 120 105 100 87 • Several large banks and financial institutions are 80 awaiting approval from SEBI to launch asset 68 management services. billion) US$ (in 60 48 40 20 0 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Sep-10 Sources: AMFI website, www.amfiindia.com, accessed 30 November 2010; SEBI Annual Report 2008-09; SEBI Bulletin October 2010 9 MARKET OVERVIEW Financial Services November 2010 NBFCs — niche players, niche market • 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. • These NBFCs are non-deposit companies. There are more than 12,000 NBFCs registered NBFC-ND 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 NBFC-D General Finance and Leasing company, Bajaj Finance, Sriram Transport Finance, Sundaram Finance, etc. 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 10 MARKET OVERVIEW Financial Services November 2010 Microfinance institutions (MFIs) • In India, most microfinance loans are between Industry size US$ 100 (INR 4,800) and US$ 415 (INR 20,000). 6 5 4.79 • In 2009, about 230 microfinance institutions added 8.5 million borrowers, taking the total 4 CAGR number to 22.6 million. 93% 3 2.4 • Microfinance institutions exist in many legal billion) US$ (in 2 forms such as trusts, societies, non-profit 1 companies and NBFCs. 0.18 0 2005 2009 2010 E 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 11 MARKET OVERVIEW Financial Services November 2010 Key players — retail brokerage Company Service offerings Online trading, equities, derivatives, commodity trading, initial public offerings (IPOs), India Infoline Investment Services Ltd MF distribution, personal finance, market and sector research, investment banking and wealth management. Equity, derivatives, portfolio management, online trading, insurance, commodity Motilal Oswal Financial Services trading, mutual funds and margin funding. Online trading, market and research, personal finance and corporate services, equity, ICICIdirect.com futures and options (F&O), IPO, overseas trading, retirement solutions and life insurance. HDFC Securities Online trading, call and trade, IPO, equity and derivatives. Equities, commodity trading, personal finance, wealth management, asset management, Religare Enterprises Ltd 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. 12 MARKET OVERVIEW Financial Services November 2010 Key players — asset management companies (AMCs) AUM, March 2009 AUM, September 2010 Company (US$ billion) (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 • 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. Sources: EY research, AMFI website, www.amfiindia.com, accessed 30 November 2010 Note: This is an indicative list. 13 MARKET OVERVIEW Financial Services November 2010 Key players — NBFCs Company Service offerings Sundaram Finance Commercial vehicle finance, equipment finance, tyre finance, car and home finance.