"Secular Meets Cyclical: A Winning Investment Strategy for All Seasons"
Is the Sweet Spot Here?
Secular Trend & Cyclical Trend
A secular trend is a long-term trend that can last for several years or even decades, and it is usually driven by fundamental factors such as changes in demographics, technology, or consumer preferences.
On the other hand, a cyclical trend is a shorter-term trend that is driven by economic cycles or other periodic fluctuations in the market.
"The Rise of Financialization in India: How a Secular Trend is Changing the Savings Landscape"
Financialization of savings refers to the growing trend of individuals and households shifting away from traditional forms of savings such as physical assets (like gold or real estate) and towards financial instruments such as mutual funds, insurance, and other market-linked products.
Yes, there has been a secular trend towards financialization of savings in India in recent years. This trend has been driven by a number of factors, including the growth of the financial sector, increased access to financial services, and changing attitudes towards savings and investment.
One of the key drivers of financialization in India has been the growth of the mutual fund industry. Mutual funds have become an increasingly popular investment option for individual investors, as they offer diversification, professional management, and relatively low transaction costs.
Another factor driving financialization of savings in India has been the growth of the insurance sector. Life insurance and health insurance policies have become more popular among Indian households as a means of managing risks and protecting against unforeseen events.
Furthermore, the growth of digital platforms and fintech companies has made it easier for individuals to access and manage financial products and services. This has led to an increase in financial literacy and awareness among Indian households, which in turn has contributed to the growth of financialization.
There are several companies that have become big in the last decade in India's financial sector due to the trend of financialization of savings. Here are a few examples:
Paytm: Paytm is a digital payments and financial services company that has become one of India's largest fintech companies. It was founded in 2010 and has since expanded into areas such as digital wallets, payments bank, insurance, and investment management.
PhonePe: PhonePe is another digital payments and financial services company that has become popular in India in recent years. It was founded in 2015 and was acquired by Flipkart in 2016. Today, it offers a range of services including digital wallets, mutual funds, and insurance.
Zerodha: Zerodha is a discount brokerage firm that has become one of India's largest stockbrokers in recent years. It was founded in 2010 and has since grown rapidly due to its low-cost structure and innovative technology platforms.
PolicyBazaar: PolicyBazaar is an online insurance aggregator that has become one of India's leading insurance companies. It was founded in 2008 and has since expanded into other financial services such as loans and credit cards.
Groww: Groww is a digital investment platform that enables users to invest in mutual funds, stocks, and other financial products. It was founded in 2017 and has since become one of India's fastest-growing fintech startups, with a user base of over 1.5 crore as of 2021.
Insights from Industry Experts and Latest Reports:
Explained: Why financial savings of households may more than ..
Financialisation of savings to jump to 74% of GDP by FY27: Report
Marcellus: The Big Shift in Small Town India
The “Financialisation” of India’s Savings | Saurabh Mukherjea | Monika Halan | Tej Shah
Charts that make you go Hmmm…
Chart 1: HDFC Asset Management Company Ltd
Chart 2: Aditya Birla Sun Life Amc Ltd.
Chart 3: Prudent Corporate Advisory Services Ltd.
Chart 4 :ICICI Securities Ltd
Chart 5: Angel One Ltd
Chart 6: HDFC Life Insurance Company Ltd
Chart 7: ICICI Prudential Life Insurance Company Ltd
Chart 8: ICICI Lombard General Insurance Company Ltd
Chart 9: Home First Finance Company India Ltd (Technology-driven affordable housing finance company)
Chart 10 : "Kotak Mahindra Bank: The One-Stop-Shop for All Your Financial Needs”
Investors, it's time to take a closer look at Kotak Bank, the unique financial institution that offers exposure to every sector of financial services under one share. That's right, with Kotak Bank, you can access banking services, insurance products, and investment related services, all in one place.
But that's not all. Kotak Bank has also been trading in the lower part of the channel, presenting investors with a potentially attractive buying opportunity. The last time it traded at these levels was during the 2008-09 financial crisis, and since then, it has steadily climbed to become one of the leading banks in India.
Moreover, with a long-term perspective, Kotak Bank has the potential to become a top player in the Indian market, with a market cap that rivals even the biggest players in the sector. And the best part is, unlike its peers, Kotak Bank has not gone the route of listing its subsidiaries, making it a truly unique proposition for investors.
*ATH=All Time High
Summary:
Fellow investors, as we look at the financial landscape in India, we can see that the country is undergoing several secular trends, including the financialization of savings. This trend is being driven by a range of factors, from demographic shifts and the demonetization of currency to the COVID-19 pandemic and technological advancements.
As a result of this trend, a host of new players have emerged in the financial services industry, including Paytm, PhonePe, Zerodha, Policybazaar, and Groww, among others. These companies understand the changing landscape and are poised to capitalize on the emerging opportunities.
Yet, while the industry is evolving at a rapid pace, there are several trends and areas that are likely to be important in the coming years and could present opportunities for companies to grow and succeed. These include digital banking, wealth management, insurance, and data analytics.
Now, as we look to take advantage of the long-term growth potential in the financial services industry in India, it's important to have the right tools and indicators to help us navigate the market. The log trend channel is my best indicator for checking the cyclical aspect of trading in any asset.
By identifying assets that are trading at cyclical lows (lower log trend channel) due to macroeconomic factors, liquidity cycles, or economic downturns within ongoing secular trends, we can identify attractive risk-reward opportunities. This is one of the best setups in terms of risk reward, and presents an opportunity for investors looking to capitalize on the long-term growth potential of the financial services industry in India.
So, let's stay alert and be ready to seize the opportunities that this ever-evolving industry presents.
Mutual Fund Investors can get exposure to fund who is investing in Banking & financial services sector.
Disclosure: I have a long position in companies such as HDFCAMC, ABSLAMC, ICICIGI, HDFCLIFE, KOTAKBANK, ICICIPRULI, HOMEFIRST, and PRUDENT. While my opinions may be influenced by my personal investments, it is important to note that every investor has their unique goals and circumstances. It is crucial to conduct thorough research and carefully consider your risk appetite and investment objectives before making any investment decisions.
"Disclaimer: The information provided here is for general informational and educational purposes only. The author(s) of this content are not registered financial advisors or professionals, and the content should not be construed as financial or investment advice. Any opinions expressed are those of the author(s) and do not necessarily reflect the views or recommendations of any third party. Before making any financial or investment decisions, please consult a registered financial advisor or professional. Author is not responsible for any losses, damages, or other consequences that may arise from the use of the information provided."