BFSI: Is it the right time to invest in one of the key drivers of economic growth? (2024)

Synopsis

Fitch Ratings presents an optimistic outlook for India's banking sector in 2024, highlighting the country's substantial improvement in 2023. The agency praises India's banking sector resilience and potential. The banking, financial services, and insurance (BFSI) sector in India is integral to the country's economic growth, offering abundant growth opportunities. The BFSI sector boasts financial health and stability, with regulatory safeguards in place.

BFSI: Is it the right time to invest in one of the key drivers of economic growth? (1)ET Spotlight

Fitch Ratings has presented an optimistic outlook for 2024, highlighting India's substantial improvement in 2023 that exceeded expectations in the Asia-Pacific (APAC) Emerging Market. The agency anticipates sustained growth and enhanced performance, particularly praising India's banking sector resilience and potential1

India's banking landscape has notably improved, aligning well with positive bank operating environments (OE) assessments in the country. This underscores the nation's resilience and potential in the banking sector, driven by robust internal mechanisms and the status of domestic systemically important banks.

The banking, financial services, and insurance (BFSI) sector in India has always been fundamental to economic development, serving as a key player in capital allocation, risk management, and the promotion of financial inclusivity. As India's GDP exceeds market expectations, standing at an impressive growth rate of 7.3% in the 2023-24 fiscal2, investors are increasingly pondering a crucial question: Is now the opportune moment to invest in BFSI in India?

Here are six reasons to consider investing in the BFSI sector:

  • Integral to India's economic growth: The BFSI sector is intricately linked to India's economic heartbeat. In FY22, the BFSI sector’s share of Indian GDP increased to about 12%.3 With the country's GDP poised for growth, the BFSI sector is a key facilitator, positioned to thrive alongside the overall economic expansion. Investing in BFSI provides an opportunity to align your portfolio with the dynamic trajectory of India's economic development.
  • Possible abundant growth opportunities: Certain segments within BFSI, such as insurance and mutual funds, offer plentiful growth prospects. These industries, characterised by evolving consumer needs and technological advancements, create fertile ground for investments to flourish. For instance, The insurance market is expected to reach USD 222 billion by as early as 2026.4 Diversifying your portfolio into these high-potential sectors can yield substantial returns by tapping into emerging opportunities.
  • Seeks financial health and stability in the long run: The BFSI sector boasts robust financial stability, marked by reduced instances of bad loans (non-performing assets) and enhanced profitability. The Banking industry in India has historically been one of the most stable systems globally, despite global upheavals, as per Invest India. Investing in a sector with a healthier financial foundation helps create a favourable environment for your portfolio.
  • Regulatory safeguards: The highly regulated nature of the BFSI sector seeks to shield the investors. Stringent regulations imposed by trusted authorities seek to ensure transparency, accountability, and adherence to ethical practices within financial institutions. This regulatory oversight not only safeguards the interests of investors but also contributes to the overall stability of the sector, mitigating potential risks.
  • Optimal valuations: Current valuations within the BFSI sector are positioned below historical averages, presenting an opportune moment for prospective investors. Lower valuations create a favourable entry point, allowing investors to capitalise on potential future gains as the sector undergoes growth and recovery. According to the CRISIL report, the banking sector is expected to clock a CAGR growth of 12-14% till FY25, while the deposit growth is expected to grow by 11-12% in FY24.5 Considering the sector's intrinsic connection to India's economic resurgence, now is a golden time to explore investment opportunities within BFSI.
  • Inherent diversification: Investing in BFSI inherently brings diversification benefits to your portfolio. The sector is designed to spread investments across various financial instruments and institutions, effectively lowering overall risks. This deliberate diversification strategy ensures that your portfolio remains resilient and adaptable to changing market conditions, providing stability and potential for sustained returns over the long term.

How to invest in the BFSI sector?
One avenue for investing in BFSI is through New Fund Offers (NFOs). Notably, Grow Mutual Fund (formerly known as Indiabulls Mutual Fund) will also launch the Groww Banking & Financial Services Fund, an open-ended equity scheme investing in banking and financial services-related sectors. Investors should understand that investment in the Scheme carries high risk.

The NFO, open from January 17 to January 31, 2024, aims to provide growth opportunities and capital appreciation by navigating the dynamic landscape of the banking and financial services sector.

Why should you invest in Groww banking and financial services fund?

The Groww banking and financial services fund has adopted the following investment philosophy for possible optimum growth:

  • Flexible approach: The scheme adopts a flexible approach, avoiding style or market cap bias to adapt to market changes and BFSI sub-sectors, with a time horizon of around 5+ years.
  • Emphasis on diverse financial services businesses: The focus is on large and emerging financial services businesses, utilising both top-down and bottom-up approaches.
  • Allocation to other sectors: The scheme primarily focuses on equity and equity-related securities engaged in financial services while allowing up to 20% allocation to other sectors.
  • Participation in IPOs and emerging sectors: The strategy includes participation in IPOs, emerging sectors, and primary market offerings, alongside potential investments in debt or money market securities within defined limits.

The positive outlook for BFSI in India, coupled with the strategic approach of funds like Groww banking and financial services fund, presents an attractive proposition for investors seeking to capitalise on the nation's economic resurgence and the sector's intrinsic potential. As always, investors are advised to conduct thorough research and consider their risk appetite before making investment decisions.

To know more about Groww banking and financial services fund, click here.

Sources:

  1. https://economictimes.indiatimes.com/news/international/world-news/growth-in-asia-pacific-emerging-markets-to-remain-strong-in-2024-fitch/articleshow/106518162.cms?from=mdr
  2. https://economictimes.indiatimes.com/news/economy/indicators/indias-gdp-to-likely-grow-by-7-3-in-fy24-govts-first-advance-estimate-shows/articleshow/106576201.cms?from=mdr
  3. https://economictimes.indiatimes.com/markets/stocks/news/banks-and-nbfc-stocks-in-sweet-spot-is-a-rerating-in-the-offing/articleshow/95374634.cms?from=mdr
  4. https://www.ibef.org/news/insurance-market-in-india-to-reach-222-bn-by-fy26-report
  5. https://esafbank.com/pdf/Industry%20Report.pdf

Disclaimer: This article is generated and published by the ET Spotlight team. You can get in touch with them on etspotlight@timesinternet.in.

(This article is generated and published by ET Spotlight team. You can get in touch with them on etspotlight@timesinternet.in)

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As an enthusiast with a demonstrable understanding of the topic, particularly in the financial sector and investment landscape, I would like to draw attention to the optimistic outlook presented by Fitch Ratings for India's banking sector in 2024. My knowledge encompasses a broad understanding of the BFSI (Banking, Financial Services, and Insurance) sector, market dynamics, and investment strategies.

The evidence supporting the positive outlook includes Fitch Ratings' acknowledgment of India's substantial improvement in 2023, exceeding expectations in the Asia-Pacific Emerging Market. The agency's praise for India's banking sector resilience and potential indicates a deep understanding of the sector's dynamics.

Key Concepts Used in the Article:

  1. Optimistic Outlook for India's Banking Sector:

    • Fitch Ratings anticipates sustained growth and enhanced performance in 2024, emphasizing India's banking sector resilience and potential.
  2. BFSI Sector as Integral to Economic Growth:

    • The BFSI sector is fundamental to India's economic development, contributing significantly to capital allocation, risk management, and financial inclusivity.
  3. India's GDP Growth and BFSI Sector Share:

    • India's GDP growth rate stood at an impressive 7.3% in the 2023-24 fiscal, aligning with the positive trajectory of the BFSI sector.
    • The BFSI sector's share of Indian GDP increased to about 12% in FY22.
  4. Investment Opportunities in BFSI:

    • The article provides six reasons to consider investing in the BFSI sector, including its integral role in economic growth, abundant growth opportunities, financial health, regulatory safeguards, optimal valuations, and inherent diversification benefits.
  5. Regulatory Safeguards in BFSI:

    • The BFSI sector is highly regulated, ensuring transparency, accountability, and adherence to ethical practices within financial institutions.
  6. Valuations and Growth Projections:

    • Current valuations within the BFSI sector are positioned below historical averages, creating a favorable entry point for investors.
    • The CRISIL report suggests a CAGR growth of 12-14% in the banking sector till FY25, with deposit growth expected to be 11-12% in FY24.
  7. Diversification Benefits:

    • Investing in BFSI inherently brings diversification benefits to a portfolio by spreading investments across various financial instruments and institutions, lowering overall risks.
  8. Investment Avenues – New Fund Offers (NFOs):

    • The article introduces investing in BFSI through New Fund Offers (NFOs), with a specific mention of the Groww Banking & Financial Services Fund.
  9. Groww Banking and Financial Services Fund:

    • The Groww fund is highlighted for its flexible approach, emphasis on diverse financial services businesses, allocation to other sectors, and participation in IPOs and emerging sectors.
  10. Caution and Advice for Investors:

    • Investors are advised to conduct thorough research and consider their risk appetite before making investment decisions.

This comprehensive overview demonstrates my familiarity with the intricate details of India's banking sector, its role in the economy, and the factors influencing investment decisions within the BFSI landscape.

BFSI: Is it the right time to invest in one of the key drivers of economic growth? (2024)

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