**[investwise]** India: Household Savings-A Game Changer (Kotak Sec)

 

Kotak Securities India: Household Savings, A Game Changer   US$10 tn up for grabs over next 15 years!   We expect the financial services sector to present a US$10 tn opportunity in the next 15 years benefitting all five stakeholders, given the favorable demographics, economic growth and progressive regulatory trends.   Like its Asian counterparts, we expect India to continue being an economy of savers—we do not expect the high savings rates to fall. Of course, most of our numbers are based on the assumption of continued economic growth—we treat growth as an exogenous variable and model it as a given. Any setback to growth would have a proportionate impact on the opportunity size.   5 GameChangers As people move into the 'productive ages' of 20-59, they save more: 88% of India's population will be less than 60 years old by 2025E   -GDP per capita is expected to increase to US$5,000 in 2025E from US$1,177 currently   -1,200 mn bank accounts and 55 mn demat accounts in 2025E, from 600 mn bank accounts and 10 mn demat accounts at present deepening financial inclusion.   -Significant reduction in transaction costs on the back of technologically-enhanced delivery platforms; e-money will begin to replace hard currency, thereby increasing credit creation.   We expect regulators to play a cutting-edge role in setting the global regulatory agenda.   5 segments to benefit   Deposits form the largest portion of savings currently (55% of household savings). We expect a cumulative inflow of US$4.2 tn in incremental deposits over the next 15 years.   Shares and corporate debentures: We expect an increasing percentage of incremental savings to go into equities: total inflow to aggregate to US$1.1 tn over the next 15 years.   Driven by the fiscal incentives offered by the government, we expect the government to mop up an incremental US$339 bn over the next 15 years.   We expect the insurance industry new premium collection to increase to US$300 bn annually in 2025E from US$40 bn currently—growth of 7X.   Given the lack of social security provisions, increasing life-expectancy and fiscal benefits, we expect a flow of US$1.4 tn over the next 15 years into the pension funds.   5 stakeholders   We calculate the incremental capital requirement in the banking sector to be US$613 bn over the next 15 years. Expect both entry and exits (via consolidation) in mutual funds, insurance.   Significant contributor to employment creation with 1.6 mn opportunities over the next 15 years in the banking sector alone. The insurance industry could triple its agent base from the 3 mn agents at present. Training the massive inflow of employees will be a big challenge.   With increasing transparency, we expect intermediaries to move to an advisory fee-based model from the current commission-dependent model.   With regulators batting for customers across the financial services domain, we expect increased choices, lower costs, pointed targeting and new modes of communication for customers.   The key question will be whether India will continue with a fragmented regulatory framework or if a super-regulator will emerge in the financial services industry. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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