Security Analysis

Assignment
On
Industry Analysis (Financial Services)
By
Surabhi
19BSP2964
Section - C

Submitted To: - Prof. Vineeta Mishra

 INDUSTRY
Industry refers to a set of companies that do a same job for customers in essentially the same ways.

Financial services Industry

The financial services sector provides financial services to people and corporations. This
segment of the economy is made up of a variety of financial firms including banks,
investment houses, lenders, finance companies, real estate brokers, and insurance
companies. This industry is probably the most important sector of the economy, leading the
world in terms of earnings and equity market capitalization. Large conglomerates dominate
this sector, but it also includes a diverse range of smaller companies.

Overview Of The Industry

India has a diversified financial sector undergoing rapid expansion, both in terms of strong
growth of existing financial services firms and new entities entering the market. The sector
comprises commercial banks, insurance companies, non-banking financial companies, co-
operatives, pension funds, mutual funds and other smaller financial entities. The banking
regulator has allowed new entities such as payments banks to be created recently thereby
adding to the types of entities operating in the sector. However, the financial sector in India
is predominantly a banking sector with commercial banks accounting for more than 64 per
cent of the total assets held by the financial system.
 INDUSTRY LIFE CYCLE

 Stage 1 (Development) -
 Market Size
 The MF industry’s Assets under Management (AUM) has grown from Rs 10.96 trillion
(US$ 156.82 billion) in October 2014 to Rs 28.18 trillion (US$ 403.32 billion) in January
2020.
 Another crucial component of India’s financial industry is the insurance industry. The
insurance industry has been expanding at a fast pace. The total first year premium of life
insurance companies reached Rs 214,673 crore (US$ 30.72 billion) during FY19.
 In the secondary market, the market for Initial Public Offers (IPOs) has also witnessed
rapid expansion. In FY19, Rs 14,674 crore (US$ 2.10 billion) has been raised from Initial
Public Offerings (IPOs).
 India’s leading bourse Bombay Stock Exchange (BSE) will set up a joint venture with Ebix
Inc to build a robust insurance distribution network in the country through a new
distribution exchange platform.

Government Initiatives
 In November 2019, government allocated Rs 10,000 crore to set up AIFs for revival of
stalled housing projects.
 Under the Interest Subvention Scheme for MSMEs, Rs 350 crore (US$ 50.07 million) has
been allocated under Union Budget 2019-20 for 2 per cent interest subvention for all
GST registered MSMEs, on fresh or incremental loans.
 In December 2018, Securities and Exchange Board of India (SEBI) proposed direct
overseas listing of Indian companies and other regulatory changes.
 Bombay Stock Exchange (BSE) introduced weekly futures and options contracts on
Sensex 50 index from October 26, 2018.
 In September 2018, SEBI asked for recommendations to strengthen rules which will
enhance the overall governance standards for issuers, intermediaries or infrastructure
providers in the financial market.
 The Government of India launched India Post Payments Bank (IPPB), to provide every
district with one branch which will help increase rural penetration. As of August 2018,
two branches out of 650 branches are already operational.
 Porter’s Five Forces Model

Porter's Five Forces is a model that identifies and analyses five competitive forces that
shape every industry and helps determine an industry's weaknesses and strengths. Five
Forces analysis is frequently used to identify an industry's structure to determine corporate
strategy. Porter's model can be applied to any segment of the economy to understand the
level of competition within the industry and enhance a company's long-term profitability.
The Five Forces model is named after Harvard Business School professor, Michael E. Porter
(1979).

Threat of New Entrant

Bargaining Power of suppliers

Competitive Analysis

Bargaining Power of Buyers

Competitive rivalry

Threat of substitute

Competitive
Strengths

Competitive
Pressure

Strategy
1. Threat of new entrants-

 New entrants in Financial Services bring innovation, new ways of doing things and put
pressure on Discover Financial Services.
 It leads to lower pricing strategy, reducing costs, and providing new value propositions
to the customers.
 Discover Financial Services has to manage all these challenges and build effective
barriers to safeguard its competitive edge.

2. Bargaining Power of Suppliers-

 All most all the companies in the Financial Services industry buy their raw material from
many suppliers.
 Suppliers in dominant position can decrease the margins Discover Financial Services can
earn in the market.
 Powerful suppliers in financial sector use their negotiating power to extract higher prices
from the firms in Credit Services field.
 The overall impact of higher supplier bargaining power is that it lowers the overall
profitability of Credit Services.

3. Bargaining Power of Buyers-

 Buyers are often a demanding lot. They want to buy the best offerings available by
paying the minimum price as possible.
 This put pressure on Discover Financial Services profitability in the long run.
 The smaller and more powerful the customer base is of Discover Financial Services the
higher the bargaining power of the customers and higher their ability to seek increasing
discounts and offers.

4. Competitive rivalry-

 If the rivalry among the existing players in an industry is intense then it will drive down
prices and decrease the overall profitability of the industry.
 Discover Financial Services operates in a very competitive Credit Services industry. This
competition does take toll on the overall long term profitability of the organization.

5. Threats of Substitute –
 When a new product or service meets a similar customer needs in different ways,
industry profitability suffers. For example services like Dropbox and Google Drive
are substitute to storage hardware drives.
 The threat of a substitute product or service is high if it offers a value proposition
that is uniquely different from present offerings of the industry.
Key Driven Changes
 Road Ahead
 India is expected to be fourth largest private wealth market globally by 2028.
 India is today one of the most vibrant global economies, on the back of robust
banking and insurance sectors. The relaxation of foreign investment rules has
received a positive response from the insurance sector, with many companies
announcing plans to increase their stakes in joint ventures with Indian companies.
Over the coming quarters there could be a series of joint venture deals between
global insurance giants and local players.
 The Association of Mutual Funds in India (AMFI) is targeting nearly five-fold growth
in assets under management (AUM) to Rs 95 lakh crore (US$ 1.47 trillion) and a
more than three times growth in investor accounts to 130 million by 2025.
 India's mobile wallet industry is estimated to grow at a Compound Annual Growth
Rate (CAGR) of 150 per cent to reach US$ 4.4 billion by 2022 while mobile wallet
transactions to touch Rs 32 trillion (USD $ 492.6 billion) by 2022.