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India is a Fintech powerhouse

With the 3rd highest unicorn in the world. Capital is now shifting from payments to lending tech, insurtech and wealth-tech. Fintech space is likely to become $1 trillion AUM by FY30.

The 3T model and realistic increase in TAM

We believe that the efficient utilization of the Indian digital superhighway built on combination of JAM, flexible Regulator and NPCI is driving a realistic increase in Total addressable market(TAM) in the retail and MSME credit space . We explain the structural changes in what we call the 3T model.

Ticket-size

We believe lower tickets are catalyzing financial diversification , with a whole set on SENP category becoming eligible. Banks/NBFCs willing to experiment in the NTB and underserved category will be able to tap the middle middle class and lower middle class more effectively.

Tenure

On account of easy access to STPL,BNPL, we assume that a 25 year old today will land up taking 15 loans over the his lifetime as against 3-4 earlier. Banks/NBFCs having customer ownership and have effective PPC strategy will win here..

Time to launch new product

Open banking, APIs are driving faster turnaround time to implement financial products . Partnerships between Banks, NBFC and Fintechs are happening at a increasing pace . We would want to position ourselves in Banks/NBFCs which have an edge in technology .

Large NBFCs withstood multiple liquidity shocks

India NBFCs have weathered several Liquidity shocks like Demon, IFL&FS crisis , GST and the Pandemic and have emerged stronger out of them. Many NBFCs are diversifying into digital lending to tap into the new customers and diversify their product mi.

Deep-dive into NBFCs

We analyze data on several aspects very closely. Pricing power and higher liquidity on balance are likely to sustain NIM despite the increase in interest rates. BAF’s customer acquisition prowess is unassailable. In terms of tech spending, BAF is matched well by L&T finance and Poonawalla. Sundaram and SHTF are the laggards here. BAF write-offs much higher proportion of Stage 3 assets than others .

How we look at the BFSI space

* Customer experience, customer ownership and customer retainership will likely drive valuations

* Runway for profitable growth in Banks and NBFCs with digital readiness, openness to tieups, strong tech architecture is likely to be higher…

* Globally Bigtech has overtaken fintech in terms of profitability and market share. In India also, the payments space big-tech now has a lion’s share.

Top Picks

We initiate coverage on BAF, Chola, MMFS, L&T Finance, Poonawalla Finance and SBI cards. Our top picks include BAF(best fintech play) and MMFS(classic turnaround play). We have an underperform rating on SBIC on account of no innovation in credit cards space, decreasing yields and increasing competition.

Key risks

* Any macro economy shocks to the economy which can derail consumption .

* Any interest rate shock arising from higher than expected inflation..

* Aggressive competition by banks can lead to lower than expected yields.

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