Financial Services in India

SECTOR ANALYSIS:

Introduction:
India has a diversified financial sector undergoing rapid expansion, both in terms of strong growth of
existing financial services firms and new entities entering the market. The sector comprises commercial
banks, insurance companies, non-banking financial companies, co-operatives, pension funds, mutual
funds and other smaller financial entities. The banking regulator has allowed new entities such as
payments banks to be created recently thereby adding to the types of entities operating in the sector.
However, the financial sector in India is predominantly a banking sector with commercial banks
accounting for more than 64 per cent of the total assets held by the financial system.

The Government of India has introduced several reforms to liberalize, regulate and enhance this
industry. The Government and Reserve Bank of India (RBI) have taken various measures to facilitate easy
access to finance for Micro, Small and Medium Enterprises (MSMEs). These measures include launching
Credit Guarantee Fund Scheme for Micro and Small Enterprises, issuing guideline to banks regarding
collateral requirements and setting up a Micro Units Development and Refinance Agency (MUDRA).
With a combined push by both government and private sector, India is undoubtedly one of the world's
most vibrant capital markets. In 2017,a new portal named 'Udyami Mitra' has been launched by the
Small Industries Development Bank of India (SIDBI) with the aim of improving credit availability to Micro,
Small and Medium Enterprises' (MSMEs) in the country. India has scored a perfect 10 in protecting
shareholders' rights on the back of reforms implemented by Securities and Exchange Board of India
(SEBI).
Market Size:
The Mutual Fund (MF) industry in India has seen rapid growth in Assets Under Management (AUM).
Total AUM of the industry stood at Rs 24.03 trillion (US$ 342.01 billion) between April-November 2018.
At the same time the number of Mutual fund (MF) equity portfolios reached a high of 74.6 million as of
June 2018.

Another crucial component of India’s financial industry is the insurance industry. The insurance industry
has been expanding at a fast pace. The total first year premium of life insurance companies reached Rs
193,866.23 crore (US$ 30.10 billion) during FY18.
Along with the secondary market, the market for Initial Public Offers (IPOs) has also witnessed rapid
expansion. The total amount of Initial Public Offerings (IPO) increased to US$ 1.2 billion raised from 37
between April – June 2018.

Over the past few years India has witnessed a huge increase in Mergers and Acquisition (M&A) activity.
In H12018, 74 deals of acquisition took place in financial sector. The total value of such transactions was
US$ 4.166 billion. *

Furthermore, India’s leading bourse Bombay Stock Exchange (BSE) will set up a joint venture with Ebix
Inc to build a robust insurance distribution network in the country through a new distribution exchange
platform.

Investments/Developments:
 Investments by Foreign Portfolio Investors (FPIs) in Indian capital markets have reached Rs 6,310
crore (US$ 899.12 million) up to November 22, 2018.
 As of October 2018, the Financial Inclusion Lab has selected 11 fintech innovators with an
investment of US$ 9.5 million promoted by the IIM-Ahmadabad’s Bharat Inclusion Initiative (BII)
along with JP Morgan, Michael and Susan Dell Foundation, and the Bill and Melinda Gates
Foundation.
 The private equity and venture capital (PE/VC) investments reached US$ 25.20 billion between
January to October 2018.*

Government Initiatives:
 In December, 2018, Securities and Exchange Board of India (SEBI) proposed direct overseas listing of
Indian companies and other regulatory changes.
 Bombay Stock Exchange (BSE) introduced weekly futures and options contracts on Sensex 50 index
from October 26, 2018.
 In September 2018, SEBI asked for recommendations to strengthen rules which will enhance the
overall governance standards for issuers, intermediaries or infrastructure providers in the financial
market.
 The Government of India launched India Post Payments Bank (IPPB), to provide every district with
one branch which will help increase rural penetration. As of August 2018, two branches out of 650
branches are already operational.
Road Ahead:

 India is today one of the most vibrant global economies, on the back of robust banking and
insurance sectors. The relaxation of foreign investment rules has received a positive response from
the insurance sector, with many companies announcing plans to increase their stakes in joint
ventures with Indian companies. Over the coming quarters there could be a series of joint venture
deals between global insurance giants and local players.
 The Association of Mutual Funds in India (AMFI) is targeting nearly fivefold growth in assets under
management (AUM) to Rs 95 lakh crore (US$ 1.47 trillion) and a more than three times growth in
investor accounts to 130 million by 2025.
 India's mobile wallet industry is estimated to grow at a Compound Annual Growth Rate (CAGR) of
150 per cent to reach US$ 4.4 billion by 2022 while mobile wallet transactions to touch Rs 32 trillion
(USD $ 492.6 billion) by 2022.

Exchange Rate Used: INR 1 = US$ 0.0142 as of Q2 FY19.

 SWOT ANALYSIS

 Online Trading platform.

 Diverse branches and networks provide a great
opportunity to cater tapped and untapped market as
STRENGHT well.
 Provides competitive brokerage and Dp charges.
 Equity analysis reports to support its clients.
 Both online and offline trading facility.
 Real time online transfer of funds and exposure
facility with HDFC, Citybank ,ICICI, etc

 It should have its own Mutual Funds as it provides

advices on mutual funds.
 Position to answer the questions of the clients in their
fields.
WEAKNESSES  It does not provide indices on major world markets,
ADR prices of Indian scripts.
 Lacks banking arm.
  Financial Services like mutual funds and insurance.
 It is registered with Luxemberg Stock Exchange so
can target other stock exchanges also.

OPPORTUNITIES ATM facility should be provided for easy
withdrawals.
 Tie-ups with third party companies for selling
products.
 High client base will help for cross sales of its
products.

 Companies like SherKhan, ICICI Direct, Kotak Securities,

and private brokers are major threats.
 Banks with demat facilities are jockeying for position.
 Local brokers capable of charging lower brokerage.
THREATS  Changes in SEBI guidelines and other tax implications.
 Government regulations.
 Market Players and their Market Shares:

Name Last Price Market Sales Net Profit Total

Cap (Rs. Turnover Assets
Cr.)
HDFC
1,981.55 340,954.10 35,185.17 12,163.69 278,369.41
Indiabulls Housing
Finance 727.70 31,072.22 12,214.76 3,566.52 100,356.46
LIC Housing Finance
528.15 26,653.78 14,959.66 1,989.59 132,297.12
GRUH Finance
263.00 19,292.89 1,687.19 362.68 13,539.81
PNB Housing Finance
859.10 14,386.96 5,516.39 830.65 56,937.44
Can Finance Homes
323.60 4,308.87 1,543.90 301.77 13,313.10
Dewan Housing
133.75 4,197.38 10,450.16 1,172.13 87,822.38
Repco Home
449.95 2,814.95 1,105.43 206.13 7,944.74
GIC Housing Finance
255.65 1,376.70 1,128.40 184.43 9,534.32
Reliance Home Finance
28.05 1,360.59 1,603.00 181.00 13,473.05
Crest Ventures
138.15 393.03 71.86 48.44 328.94
 Porter’s Five Force Model:

The Porter Five Forces that determine the industry structure in Financial Services are:

1. Threats of New Entrants:

New entrants in Credit Services brings innovation, new ways of doing things and put pressure on
Discover Financial Services through lower pricing strategy, reducing costs, and providing new value
propositions to the customers. Discover Financial Services has to manage all these challenges and build
effective barriers to safeguard its competitive edge.

2. Bargaining Power of Suppliers:

All most all the companies in the Credit Services industry buy their raw material from numerous
suppliers. Suppliers in dominant position can decrease the margins Discover Financial Services
can earn in the market. Powerful suppliers in Financial sector use their negotiating power to
extract higher prices from the firms in Credit Services field. The overall impact of higher supplier
bargaining power is that it lowers the overall profitability of Credit Services.

3. Bargaining Power of Buyers:

Buyers are often a demanding lot. They want to buy the best offerings available by paying the minimum
price as possible. This put pressure on Discover Financial Services profitability in the long run. The
smaller and more powerful the customer base is of Discover Financial Services the higher the bargaining
power of the customers and higher their ability to seek increasing discounts and offers.

4. Threats of Substitute Products or Services:

When a new product or service meets a similar customer needs in different ways, industry profitability
suffers. For example services like Dropbox and Google Drive are substitute to storage hardware drives.
The threat of a substitute product or service is high if it offers a value proposition that is uniquely
different from present offerings of the industry.

5. Rivalry among the Existing Competitors:

If the rivalry among the existing players in an industry is intense then it will drive down prices and
decrease the overall profitability of the industry. Discover Financial Services operates in a very
competitive Credit Services industry. This competition does take toll on the overall long term
profitability of the organization.
Key Financial Ratios:

Key Ratios
Adjusted EPS (Rs) 96.27 90.20 68.57 55.66 53.47 46.83 40.27
Adjusted Book Value (Rs) 384.69 314.68 285.94 253.76 186.43 170.71 162.08
Dividend per Share (Rs) - 41.00 27.00 45.00 26.00 29.00 20.00
Cash Flow per Share (Rs) - -561.60 -421.02 -276.37 -250.08 -73.41 -115.48
ROCE (%) - 11.42 12.04 12.87 13.46 13.55 11.67
RONW (%) 29.19 29.95 25.50 27.17 30.84 29.13 25.00
Operating Margin (%) 94.30 95.95 97.26 97.08 98.87 96.73 94.20
Net Margin (%) 24.33 25.88 24.68 25.30 26.00 26.43 26.37
Net Sales Growth (%) 26.14 25.81 25.45 28.51 19.42 20.42 0.00
Net Profit Growth (%) 12.28 31.53 23.62 23.76 21.21 23.89 0.00
Adj. EPS Growth (%) 12.08 31.54 23.20 4.09 14.18 16.28 0.00
Book Value Growth (%) - 10.75 13.37 61.28 16.24 12.58 0.00
Dupont Analysis:
 SWOT Analysis of ICICI Direct:

STRENGTH: WEAKNESSES:

 Banking arm.  Not innovative

 Upgrade product design and  Not diversified

development facilities to
develop new products.  High employee turnover less

 Ongoing activities to support  Small investors

up gradation of operational
performance.

 Team of talented and

committed professionals
available to improve
companies performance.

SWOT

OPPORTUNITIES: THREATS:

 Innovation  Constant pressure to be cost

competitive to meet customer
 Increase in penetration in expectations.
the market.