Financial Services

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A small Note on the The Indian Financial Sector

Financial Services

Last Updated: April-June 2008

The Indian financial sector is on a roll. Driven by a strong investor interest and an expanding market, the Indian stock market rose to record levels.
The industry is also becoming more vibrant, with new types of products and services being offered to meet the needs of the booming economy. For example, in the derivatives market, the notional principal amount outstanding has more than trebled between March 2005 and June 2007 to US$ 24.09 billion from US$ 6.836 billion.

The buoyancy in the economy is also estimated to lead to a four-fold increase in India's investable wealth from US$ 250 billion in 2007 to US$ 1 trillion. Simultaneously, according to a report by Celent, an international consultancy firm, India's wealth management will rise to an estimated 42 million by 2012 from about 13 million in 2007.

Clearly, there is huge potential in this segment. Significantly, wealth management revenues are expected to account for 32-37 per cent of the total full-service financial institutions by 2012. The market is also expected to undergo a structural transformation with organized players increasing their market share.

Stock Markets

The year 2007 saw Indian stock markets scaling new peaks. It has emerged as the third best performing market in the world with a dollar return of 71.23 per cent. The popular Bombay Stock Exchange (BSE) benchmark index, sensex, also posted its highest ever absolute gain of 6500 points in over two decades.

This performance of Indian stock markets has led to the total investor wealth of Bombay Stock Exchange (BSE) surging to a record high of over US$ 1.7 trillion, with an average increase of over US$ 10.18 million in every minute of trading during 2007. At the end of 2006, the total market capitalisation stood at US$ 812 billion.

Simultaneously, the National Stock Exchange (NSE) has climbed to the top spot in stock futures contracts and number-two slot in the index futures segment in the world.

According to Ernst & Young, India was also the fifth largest market in terms of number of IPOs and seventh largest in terms of the proceeds for the year. Indian companies raised a whopping US$ 11.48 billion through public issues in 2007, which is 83 per cent higher than US$ 6.28 billion mobilized in 2006.

The robust performance of the Indian stock markets can also be seen in the huge increase in the funds mobilised by the corporate India. During 2007-08, India Inc mobilised a whopping US$ 8.13 billion through issue of shares on rights issue, which is almost an eight-fold increase over US$ 926.32 million raised in 2006-07. In fact, the mobilisation of the funds in 2007-08 was more than the combined mobilisation of the preceding 12 years.

Simultaneously, a whopping US$ 13.07 billion has been raised through by India Inc through public issues, according to data compiled by Prime Database. This is almost twice that of US$ 6.25 billion mobilised in 2006-07 and the highest ever in the last six years. While initial public offerings mobilised US$ 10.34 billion (about 79.14 per cent), follow-on public issues mobilised US$ 2.53 billion.

The flurry of fund raising activity by the companies on the Indian stock exchange is likely to continue in 2008-09. Already, 125 companies have filed their draft offer documents (including rights and follow-on issues) with the Securities and Exchange Board of India (SEBI), to jointly raise around US$ 5.14 billion.  

Disclaimer: This information has been collected through secondary research and Sumir Sekhri & Co. is not responsible for any errors in the same.