SOME NEW ENTRANTS

Mutual Funds Dawny, Day AV Financial Services Ajay Bagga's new fund Standard Chartered Mutual Fund (entered equities) Real Estate Funds HDFC and ICICI Bank Kotak Mahindra Investments Dewan Housing Finance Dawny, Day AV Financial Services Private Banking Principal International Dawny, Day AV Financial Services Private Equity/Venture Capital Funds Blackstone Group SREI Infrastructure Finance

It's a great time to be a finance professional. The sector's just going up, up and up. Sceptics dismiss this seemingly gravity-defying continuum as the natural consequence of an economy in overdrive. It's impossible to counter that logic. The question is: is the current boom sustainable in the long term? Yes, say experts, this is the real McCoy. "The heightened activity in financial services will continue for some more time," says Narayan S.A., Managing Director of Kotak Securities. Why?

First, the broad India growth story (the economy is expected to grow at 7 per cent plus in 2005-06) still looks very good. Secondly, the stock market is in very fine fettle (the sensex crossed the 7,000-mark for the first time on June 20, 2005). That's why so many financial services companies have tapped the market recently. And most importantly, international interest this time is very strong. It is this interest from deep-pocketed foreign players that's likely to sustain the boom in the financial services sector over the long term. For example, us pension fund major Principal International (which manages $200 billion or Rs 8,80,000 crore worldwide) is increasing its exposure to India by launching new initiatives in insurance, insurance broking, financial planning, etc. Why? "India is like Japan in the 70s; anyone not getting in now will lose out on a huge emerging market," says Sanjay Sachdev, Country Manager (India), Principal International. The Blackstone Group, one of the world's largest venture capital companies, and Dawnay, Day International, the UK major with interests in real estate and financial services are also betting big on India. "We want to recreate our UK success in India," says Guy Naggar, Chairman, Dawnay, Day International. And all these players are eyeing the long term. "Anything less than 10 years is short-term for us," says Sachdev.

Mutual funds: A lot of action is taking place in this space. The sector is simultaneously witnessing consolidation (UTI Mutual Fund has absorbed IL&Fs Mutual Fund; Birla Sun Life Mutual Fund is absorbing Alliance Mutual Fund) and expansion (Dawnay, Day AV Financial Services' plans are at an advanced stage; Ajay Bagga, former CEO of Kotak Mahindra Mutual Fund, is planning a fund of his own). Even traditional fixed-income fund houses have started launching equity products. For example, Standard Chartered Mutual Fund has launched equity schemes after five years of following a "debt only" mantra. Why? "During this time, the systems and processes in the stock market have improved considerably. And the attitude of investors has also changed. They are now looking at equities as a long-term option and not only as a short-term trading opportunity," explains Naval Bir Kumar, Managing Director, Standard Chartered Mutual Fund.

"India is like Japan in the 1970s; anyone not getting in here will lose out on a huge emerging market" Sanjay Sachdev Country Manager (India), Principal International	"The market has become more dynamic; it is no longer possible for investors to invest and forget" Shitin Desai Vice Chairman, DSP Merrill Lynch

Assets under management have grown at 10 per cent per annum from Rs 1,04,032 crore five years ago to Rs 1,67,978 crore (as on May 31, 2005). Experts feel the fiasco at Unit Trust of India (UTI) retarded the pace of growth in the mutual fund industry. But now that those problems are behind it, the mutual fund industry expects great times ahead.

Real estate funds: The easing of FDI (foreign direct investment) norms in real estate is expected to sustain and accelerate the boom in the sector. And with SEBI (Securities and Exchange Board of India) now allowing the launch of real estate funds (which invest in construction projects), investors can share in the wealth being created in the sector. HDFC and ICICI Bank were the first to get their feet into the door. And others like Kotak Mahindra Investments (which is planning to raise Rs 500-750 crore) and Dewan Housing Finance (Rs 250-300 crore) are following close behind. Dawnay, Day is the big foreign entry here. It will invest about $100 million (Rs 440 crore) directly in the Indian real estate sector before launching real estate funds (both in India and offshore). "As we have generated around 50 per cent CAGR on our real estate investments (in the last 20 years), it is easy to raise funds," says Peter Klint, Chief Executive of Dawnay, Day International.

"Real estate funds provide investors with expert advice and the benefit of diversification" S. Sriniwasan Executive Director & Head (Real Estate Fund), Kotak Mahindra Investments	"Investors are now looking at equities as a long-term option and not only as a short-term trading opportunity" Naval Bir Kumar MD, Standard Chartered Mutual Fund

Will this new financial product find a large market in India? Indian real estate investors are believed to be more comfortable with "real" estate (that he can see) than with this financial instrument. "But this product provides them with expert advice and the benefit of diversification," says S. Sriniwasan, Executive Director & Head (Real Estate Fund), Kotak Mahindra Investments. "There is demand for good quality townships in India; so the market is enormous," says Kapil Wadhawan, MD, Dewan Housing Finance. There is currently an estimated deficit of 19 million housing units in India; this will increase to 22 million units in the next five years. "The opportunity exists not only in big cities like Mumbai and Delhi but also in smaller centres," says Sriniwasan of Kotak Mahindra.

Private banking: This sector is getting more organised now. Why? "These are one-stop shops that provide clients with comprehensive wealth management solutions for all their needs," says Sharad Sharma, Country Head (Private Banking), BNP Paribas. Secondly, the withdrawal of several high-yielding risk-free products (like RBI Relief Bonds) is forcing investors to rethink on how they manage their wealth. Besides, "the market has become more dynamic; it is no longer possible for investors to invest and forget (in the hope of reaping benefits later)," says Shitin Desai, Vice Chairman of DSP Merrill Lynch. BNP Paribas is planning advisory services for investments in real estate, gold, commodities, even art. Insurance advisory services are also becoming popular. That explains why more companies are entering the insurance broking. The reason is simple: customer focus. "An insurance broker represents the customer, while an insurance agent represents the company," says Principal's Sachdev.

Foreign banks, new-generation private banks and big equity research houses are moving aggressively into the arena of personal wealth management. But won't the high-entry barrier (for example, it is a minimum of $1 million, or Rs 4.4 crore, at BNP Paribas) restrict its growth momentum? No. According to a Capgemini-Merrill Lynch report, India has 70,000 individuals with financial assets in excess of $1 million excluding their primary residence. That implies a minimum market size of $70 billion (Rs 3,08,000 crore). No wonder everyone is upbeat. "We are planning to double our client base from 450 families now to 1,000 families by the end of the year," says Amitava Neogi, Chief Administration Officer (Global Private Clients), DSP Merrill Lynch.

Private equity/venture capital funds: Though private equity and venture capital funds have been active for several years, their visibility increased only recently, after the Blackstone Group decided to bet big on India by committing $1 billion (Rs 4,400 crore). And this is just the starting point. "The allocation will be raised if new opportunities emerge," says Akhil Gupta, Chairman, Blackstone India, "and a committed India fund will be raised in due course." Another player, SREI Infrastructure Finance, is launching a venture capital fund to finance "investments by Indian companies to gain global competitiveness". "We expect to raise around Rs 1,000 crore for this," says Hemant Kanoria, Vice Chairman & Managing Director of the company.

Pension funds: Every player in the financial services sector is waiting for this sector to open up. It's not difficult to guess why. There are 30-50 million workers employed by the organised sector in India. Average savings of Rs 1 lakh each adds up to a massive Rs 3,00,000-5,00,000 crore-more than the total size of the mutual fund industry in India. And with the central government expected to act within a year, the "real action" is expected to start in this space very soon.