Financialization Stocks

Total Companies
10

Financialization theme is about benefitting from the increasing participation of population in the financial system of the country. Financialization refers to increasing penetration and usage of banking services including payments, financing, insurance and investments.

1 Yr CAGR
19.62%

3 Yr CAGR
21.65%

What is this theme all about?

What are macro-economic factors driving this trend?

Initiatives by Government of India like Pradhan Mantri Jan Dhan Yojana for financial inclusion program to expand affordable access to financial services such as bank accounts, remittances, credit, insurance and pensions.

Increasing usage of UPI for payments has made banking a basic need.

Rising income levels in rural section is driving demand for various financial services.

Other programs by government like subsidies on cooking gas, pension schemes has made the bank account a must have thereby bringing major part of population in the financial world.

E-commerce has transformed the way business is done in India. The Indian E-commerce market is expected to grow to US$ 200 billion by 2026 and it was US$ 38.5 billion in 2017. Increasing ecommerce transactions require a proper financial ecosystem in place.

Indian households had debts worth ~Rs 43.5 trillion as of March 2020 from Rs 6.6 trillion at the end of March 2008 and Rs 19.3 trillion five years ago at the end of FY15. One of the major drivers of this increase in personal is credit due to visibility of people’s financial health.

Why is this theme attractive now?

Penetration of smartphones has increased access to banking services shift from physical assets to electronic assets especially among young demographics. For eg. Millennials are comfortable holding Gold ETF versus physical gold. And for holding all these kind of asset classes, having a bank account is a must.

Increased use of banking services for online payments, UPI, Credit/ Debit cards has made bank accounts a necessity.

Most of the Indians are still away from the organized credit market. With increasing awareness and availability of formal credit system, more people will shift to it.

The Government of India is keen on financial inclusion and has kept it as a top priority by launching and expanding multiple programs, and enforcing regulatory measures to promote healthy competition.

What industries/ sectors benefit from this?

Bank accounts are the main driver of financial inclusion. Four in five (79%) adults in India had a registered bank account in 2018. Banks will be the biggest beneficiaries of growing financialisation.

The number of credit card users in India in 2019 touched 52 million. Yet there are only about 3 credit cards for every 100 people in India, when compared to 32 cards in the USA. This shows that there is higher penetration opportunity in India.

India lags in terms of insurance penetration in comparison to advanced economies. The global average of insurance penetration is 6% as compared to 3.7% in India. With increasing financialization, more and more people will start availing insurance services.

Only 2% of the Indian population invests in equities (vs 55% in USA). Although, the number of Demat accounts has increased by 2.25 times in the last 9 years, it is expected to grow at consistent rate as the economy expands and the financial awareness increases.