Getting to grips with India’s financial ecosystem

Paul Sloane, portfolio manager, reports back from his recent trip to Mumbai.

The long-term outlook for Indian financial services is very strong, underpinned by good demographics, low penetration of financial products, and the fact that things like affordable housing are centre pieces of economic policy.

I’ve been in India to investigate further the growth prospects for companies involved in this sector. We’ve had many helpful conversations with companies, which will inform our research agenda, in our hunt for sustainable growth business models.

Positive development for banks

  • The universal biometric ID system means that at the touch of a single thumbprint anyone can connect with a centralised credit bureau. This enables the poorest people in India to kickstart a detailed credit track record as soon as they enter the financial system.
  • New insolvency and bankruptcy laws could be a game change for Indian banks, enabling them to take control from business owners

What we’ve discussed with Indian companies

The move to sustainable growth

There is a real difference between growth and sustainable growth. The last nine months have seen a very high-profile insolvency of an infrastructure lender and there are significant signs of stress in areas like mortgage lending.

Technology and disruption

The financial ecosystem in India is upgrading at a frantic pace. Areas like payments is seeing the system leap-frogging other countries. We’ve tried to assess from companies how the board thinks about difference between simply using technology to run a company, and using it to transform, or even reimagine the business.

Important information

This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’). It does not constitute investment advice.

Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
The opinions contained in this document are those of the named manager(s). They may not necessarily represent the views of other Martin Currie managers, strategies or funds.
The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the security transactions discussed here were or will prove to be profitable.

Risk warnings - Investors should also be aware of the following risk factors which may be applicable to the strategy.
Investing in foreign markets introduces a risk where adverse movements in currency exchange rates could result in a decrease in the value of your investment.
Emerging markets or less developed countries may face more political, economic or structural challenges than developed countries. Accordingly, investment in emerging markets is generally characterised by higher levels of risk than investment in fully developed markets.
This strategy may hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the portfolio’s value than if it held a larger number of investments.
Smaller companies may be riskier and their shares may be less liquid than larger companies, meaning that their share price may be more volatile.
The strategy may invest in derivatives (Low Exercise Price Warrants, Index futures and FX forwards) to obtain, increase or reduce exposure to underlying assets. The use of derivatives may restrict potential gains and may result in greater fluctuations of returns for the portfolio. Certain types of derivatives may become difficult to purchase or sell in such market conditions.