Prime minister Narendra Modi’s 2014 campaign encouraging citizens to open bank accounts is one of the drivers of the country’s financial sector, he said. Growing financial inclusion among the 1.3bn population, the second largest globally after China, is the key investment theme of the fund Sambhshivan manages, the Invesco India Equity Fund.
Prior to 2014, 48% of nationals held a bank account but only 24% of them were actively using the bank’s services, according to a financial inclusion survey conducted by research consultancy InterMedia.
The latest survey shows that after the 2014 government campaign, active registered users of bank accounts rose to 40% of the population. The number includes nationals who previously never had a bank account, the report said.
About 40% of assets in Sambhshivan’s fund is invested in Indian lenders and banks. In the fund’s top 10 holdings, half comes from domestic financial-related equities, such as the Mumbai-based financial conglomerate Housing Development Finance Corp and its banking arm HDFC Bank. These companies target individuals in India by offering retail financial services, such as credit cards, personal loans, and insurance products.
The financial sector is also driven by demographic changes. Sambhshivan said India’s young generation differs from their parents’ generation in managing their spending and wealth. Young people are more open to loans for a mortgage for housing or for buying a car, rather than preserving their wealth in gold and real estate.
“It is one of the very few economies with such a large population where penetration of consumption finance is really low, for example, mortgage, auto loans or other kinds of financing directly imparted to individuals,” he added.
However, India’s banking system generally has a high percentage of non-performing loans, with corporate banks in particular pressured by poor quality of assets, Sambhshivan said.
The Reserve Bank of India’s data highlights the concerns. Unpublished data by the central bank shows that bad loans in India’s banking system reached 9.5trn rupees ($145.5bn) at the end of June, according to Reuters report. The government approved a $32.4bn plan to recapitalise its state banks with the aim of addressing the balance sheet problem and lifting economic growth over the next two years, the report said.
Outside of the financial sector, Sambhshivan sees headwinds in export and manufacturing sectors as India is facing challenges in information technology and pharmaceutical exporting due to US policy issues. The manufacturing sector in general is over-leveraged and has been hit by overcapacity, he added.
The chart shows the fund’s three-year performance against its benchmark, the MSCI India 10/40 Index and the sector average of other Indian equity funds sold in Hong Kong.
Source:FE. All fund NAVs in this performance chart have been converted to US dollars.
Sambhshivan’s fund is among the top 10 best performers in the list of 110 Indian equities fund sold in Hong Kong and Singapore markets. However, it is not the only fund to have invested for the continuous growth of financial sector. Best performers in Indian equity allocate 20%-40% to the banking and financial sector.
Financial sector weight among best-performing Indian equity funds
Source: FE. Highlighted bars are the Invesco funds managed by Shekhar Sambhshivan.
