The easiest and most effective way to capture this growth is by getting adequate exposure to the source, which will fuel the enormous growth. The source is financial sector which comprises of Banks, NBFCs, Insurers, Asset Management companies, Exchanges, Rating agencies, Brokers and so on.
India is an underpenetrated market in terms of credit and other financial services. For example, Credit to GDP is merely 56% compared to 150% in US while mutual fund AUM accounts for only 12% of GDP versus 121% in the US. The US GDP is around 7 times India. Hence the opportunity size is large and rapid growth is expected for Indian financial sector.
Exhibit 1: Opportunity size is huge for Indian financial sector
A reasonable allocation towards the sector is a must. Investment through the low cost route would amplify your returns. Thus if you have a horizon of 5 years+, allocation towards the banking and financial services sector should be the backbone of your overall portfolio.
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