Blog: The Financial Sector of Indian Equity

Financials is by far the largest sector in the Indian stock market. If we consider the NIFTY 50 index, the financial sector is at about 36 %, with IT second at 17,5 %. The largest companies are Housing Development Finance Corporation (HDFC) and its subsidiary HDFC Bank, ICICI Bank, and State Bank of India (SBI).  SBI is 56 % owned by the Indian state and considered a public sector bank.

Housing Development Finance Corporation (HDFC) is a large financial company which was started in 1977 as a bank for house mortgages, and it is still major housing finance provider in India. In addition, it has grown into a large conglomerate which include a 26 % ownership in HDFC Bank, life insurance via majority ownership in HDFC Standard Life Insurance Company Limited, asset management, real estate, plus a number of other areas.

HDFC Bank is together with ICICI Bank the largest private banks in India. HDFC Bank was established in 1994 with a pure banking focus. It includes wholesale banking, retail banking and a number of different types of loans including credit cards. The bank has shown a steady growth since its inception and is now one of the largest banks globally by market cap.

ICICI Bank is one of the three large banks in India. It was established in 1994 by the financial institution Industrial Credit and Investment Corporation of India (ICICI), and have become a large conglomerate. In a joint venture with Prudential PLC, it also created ICICI Prudential Mutual Fund which is a leading asset management company in India. Based in BKC in Mumbai, it has come a long way since the start and is now a large global player in the financial industry. In 2001, Prudential and ICICI Bank established ICICI Prudential Life Insurance as another joint venture, which in 2016 became the first insurance company listed on a domestic stock exchange.

SBI has a long history, all the way back to early 1800s and is India’s largest public bank. It has also turned into a conglomerate in the financial sector, with its global reach and subsidiaries in areas like asset management, life insurance and personal credit.  The weighting of 2,4 % at Nifty 50 does not give the right picture of the banks size, as a large part of its shares is not listed. 

Kotak Mahindra Bank is smaller than the three previous mentioned, but still a very important player in the Indian market. It was established by Uday Kotak in 1985 and got the conglomerate of Mahindra Group as an investor at an early stage. The Mahindra Group is no longer an owner, but the company have kept its name. It started as a regular bank, but as its competitors, it has also grown into life insurance, asset management and investment banking.

Other smaller financial institutions are Axis Bank and Bajaj Finance. Axis Bank was established as UTI bank in 1993, but changed it name to Axis Bank in 2007. It is a broad reaching bank in India, and a conglomerate as the others. Bajaj Finance was established in 2007, after a demerger from Bajaj Auto. It is not a bank, rather a financial services company, focusing on consumer finance and insurance. The bank sector in India also includes many public banks. To be mentioned in addition to SBI is Punjab bank, Bank of Baroda and Bank of India.

Going forward, Prime Minister Modi have introduced a large plan of privation in the financial sector. Life insurance giant LIC (Life Insurance Corporation) is the first out, and two banks have also been shortlisted (Central Bank of India and Indian Overseas Bank). India has a large number of public companies which is believed to run better in private ownership. The country is also in need of improving their economy after running large deficits the last few years due to Covid-19.

LIC was established in 1953 as the single big player, until early 2000s after India opened up in the early 1990s.  It still holds 2/3 of the life insurance market of India, and manages 491 billion USD, which compare to 16 % of India’s GDP. Market value of LIC is estimated to between 250 and 300 billion USD, but only a small percentage will be privatized in the first round.

As the Indian banking system consists of 12 public banks and many public financial services companies, this is expected to be only the start of privatization of the financial sector. The employees do however not like this idea, and there are demonstrations and protest from unions and financial workers happening already. But for India’s development, privatization is key for both finance and other sectors.