Financial Services looks attractive

Yes financial services, the sector on which most analysts are extremely bullish on going forward. The reason being, the next trillion dollar opportunity for the Indian economy lies over the next five years from 2008-2012. It was only last year that our GDP crossed $1 billion and with the latter growing at 8.5% p.a on an average, we are the second fastest growing economy in the world only behind China which has been consistently growing at 10% p.a over the last decade albeit the veracity of their claims.

Mumbai is all set to become an International Financial centre (IFC) by 2015 going by the promise held out by Percy Mistry's vision document to make Mumbai an IFC. Once the proposal does come into effect, the amount of financial transactions that would be handled out of India would be inconceivable. The benefits of Mumbai becoming an IFC would also flow in the form on secondary outsourcing and back end work to other ancillary cities like Pune, Chennai, Hyderabad and Bangalore where a lot of talent pool is already available in abundance.

The scope for financial intermediation in our country is pretty high with the huge investible resources waiting to be ploughed in to the market and the demographic dividend expected to last atleast for the next few decades. The savings rate in India is less than 32 % of our GDP, out of which the household savings rate is below 16%. The Housing Mortgage to GDP ratio is also below 6%. These two are enough indicators that go a long way to prove the tremendous scope that exists for financial intermediation in our country.

A large and sizeable pool of financial planners have emerged in our country to address the needs of the" asset and wealth management" industry. India is beginning to produce crorepatis and millionares by the passing of each day. We are transforming oursleves from a tag of " knowledge creators" to "wealth creators" for the world at large. We have reached/seen such a metamorphic rise in the evolvement of corporate India that the French president today is making "humble requests" to the CII to address unemployment problems in France. With so many HNIs (High Net Worth Individuals) taking the world by storm, the wealth accumulated by them needs to be managed and managed well with profitability being the sole objective.

Mutual funds have seen their assets under management (AUM) swell by over 637000 crore as at Dec 07. This indicates the confidence of the average retail investor in the growth prospects of our Indian economy. Every month we find 4 to 5 new fund offers raking in the coffers on a regular basis. Now government has relaxed provisions for PPF and pension funds of public sector undertakings by allowing them to invest in the stock markets lured by the attractiveness of returns therein.

Infrastructure in our country is still facing huge bottlenecks in our country and is crying out for immediate reforms. As we all know, things cant happen overnight. The gestation period to solve problems in infrastructure requires foresight and political will. Given the constraints in coalition politics, even a government with all the requisite potential and wherewithal will obviously flatter to deceive as the UPA has done so far. But still, I for one firmly believe and reiterate that in a democracy like India, problems will find its own solutions and infrastructure is one such element which will address itself. Now coming back to the point of financial intermediation, herein lies a huge opportunity in infrastructure with the amount of investments expected to be flighted in both through FDI and FII routes not to forget our domestic PPP's (public private partnerships). Every sort of an Investment will find its source to either debt or equity. These can only be the two major means to raise resources and that requires financial intermediation.

The opportunities that lie ahead in the form of capital account convertibility and opening up of the banking and insurance sectors will be deliberated upon separately by the author at an appropriate time

Till then to conclude ...our financial services sector looks robust in the medium to long term even without any seminal signs of second generation reforms taking off.