The fuel powering India's growth

For example, Credit to GDP is merely 56% compared to 150% in the US while mutual fund AUM accounts for only 12% of GDP versus 121% in the US.

Jul 23, 2021 12:07 IST India Infoline News Service

India with its stated aim to reach USD 5 trillion, in terms of economy size by 2030, certainly requires a lot of momentum to reach its goal. Consumption and capex are likely to be the biggest drivers of economic growth. However, as an investor how do you capture this massive theme and strong underlying growth in your portfolio?

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
Source: Mirae AMC
Banking and financial services should be the core of your portfolio as it drives others sectors in the economy. A home, car or consumer durable buyer needing a loan, a bread earner seeking insurance to protect his dependents, an investor seeking returns, company seeking to set up a plant or expand business, all require the services of banking and financial services companies. This demand when combined with the prowess of technology, the reach and scale achieved is exponential. Hence, if it’s not part of your portfolio, you miss the whole wealth creation opportunity.

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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