The reason? I’ll keep it simple - Entry of Jio Financial Services (JFS)
Check this post on the demerger announcement of Reliance Industries where the company announced the plans to list Jio Financial Services (JFS)
I read Macquarie’s latest report on Jio financial services and here are some highlights:
5th Largest Financial services company
- On the assumption that 6.1% of Reliance Industries will be held in JFS, It will be the 5th largest financial services company in the country
Reliance’s Distribution footprint is second to none
- With 15000 stores, Reliance retail is by far the largest retailer in all the categories that it is in (consumer electronics, grocery/supermarkets, fashion)
Being able to secure loans at a lower rate than almost all of its peers (except banks), There is a real chance of Jio trying to challenge the MOAT of Bajaj Finance
- With NBFCs already losing market share to pvt banks in consumer durable financing, Jio’s arrival will make things even more difficult for them
Banks are safe from disruption - FOR NOW
-
RBI isn’t too keen on giving banking licenses to corporate groups — That keeps JFS away from banking space for now and therefore, banks can still enjoy the advantages of low cost deposits and JFS also can’t offer any transaction banking services and other products which banks are allowed to offer.
-
Unsecured Lending is the space to watch out for
With all the time consuming factors like having a physical presence, setting up a collection and repossession infrastructure that is required in secured lending (Housing and Vehicle finance), JFS may most likely focus on the unsecured lending as that is where the growth has been for the last few years more than secured lending.
Insurance, Mutual Funds and Broking
Insurance
With Capital not being an issue to enter the business, It will be interesting to see how JFS plans to disrupt the above mentioned industries.
Off late, IRDA has been very open to allow entry of new players into the insurance market
As Life insurance business takes time to build and scale, General insurance is most likely the space to target the incumbent players as the business is short term in nature.
The top-5 private sector players in the life and general insurance market have closer to 60-70% market share among private sector players. However, the rest of the market is fairly fragmented and JFS can up the ante and gain quite a good presence.
Mutual Funds and Broking
-
Bank led MFs are ruling the MF industry (SBI MF, ICICI, HDFC MF) despite the presence of corporate houses.(Tata, Birla, Nippon MF)
-
Top 6 players are enjoying 60% market share
In broking, New age broking companies have disrupted the industry which was led by bank led brokers.
The overall profits of the sector are 5800 crore per annum.