** India is not just one of the world's largest economies but the fastest- growingeconomy. It is also a critical piece in the puzzle that is humankind's pursuit ofprosperity and the desire to make the world a better place to live in.
Interestingly India is at an inflection point in this pursuit of prosperity. Even asthe country is the fastest-growing economy it is extensively under-borrowed. India's debtAUM-GDP ratio at 8% compares weakly with 21% for the world. Interestingly theonce-conservative Indian has begun to borrow a larger quantum of money to finance theacquisition of properties and vehicles or set up and manage businesses.
The one thing that modern India is not borrowing for (relatively) is the purchase offinancial assets (shares or mutual funds).
At Ashika Credit Capital Limited we believe that time has come for India to startcapitalising on the financing wave sweeping through the country. In 1984 the GDPs ofChina and India were virtually identical but three decades later China's GDP is ~5x thatof India's (US$11 trillion vis-a-vis US$2.6 trillion). The rapid outperformance can benarrowed down to the fact that India's credit- GDP proportion for private nonfinanceentities is 57% while in China this is a staggering 211%. For years as Indian savingswere largely allocated towards gold and cash China invested in financial assets and bankdeposits.
The silver lining is that this trend might have begun to correct. The digitisation ofthe Indian economy creation of Jan Dhan accounts issuance of gold bonds anddemonetisation are converging to do something remarkable: transferring assets from thephysical to demat at a speed few have seen before. The result: following thedemonetisation currency as a percentage of the GDP declined from 12% to 10% signallingthe start of a course correction.
Besides the demonetisation made something else happen: it moved India's mutual fundindustry into the next gear. As investors deposited more cash in their bank accountsbanks were flooded with funds. As banks reduced their rates on fixed deposits investormoney flowed into mutual funds. SIPs became immensely popular and the Indian mutual fundindustry surged 30% to B21.45 lakh crore in September 2017 from B16.51 lakh crore a yearearlier.
A product that was preferred more in urban centres saw its reach spread beyond thetop-15 cities. Investments from these locations rose to B3.79 lakh crore in September 2017from B2.74 lakh crore a year earlier a 38.5% rise.
What makes this reality compelling is that until now most NBFCs have focused onfinancing hard assets but not financial assets. If the speed of financing in India is toaccelerate it will need a larger number of people putting down their savings to buy intothem. Similarly it will need a larger number of people who will be encouraged to borrowto do the same. Although the former is somewhat a prevalent trend the second isrelatively nascent.
This is where a forward-looking company like Ashika Credit Capital comes into thepicture. There are a number of reasons why the management believes that the financialproducts intermediation sector in India is at a sweet spot.
One this is the phase during which awareness regarding financial products hasreached a climactic point and the time has come to make the most of this opportunity bygetting people to actually invest in them.
Two although incomes have increased consistently during the past few years thereis still a large part of the Indian population that is wary of investing in financialinstruments.
Three in modern India financial inclusion is not just about getting citizens toopen bank accounts; it is about providing them with a diverse choice of financialinstruments that enhances returns improves liquidity and provides security.
Four the attractiveness of this space comes largely from the growth of the countryitself. India's annual GDP growth rate makes it an attractive consumption-driven economywhich in turn creates a case for investing in all those sectors and companies that cancapitalise on this phenomenon.
At Ashika Credit Capital we take the case of secondary financial inclusion ahead byproviding loans to investors to buy shares and create incomeenhancing assets for thefuture.
This model has been woven around an attractive proposition in the sense that thisbusiness is synergistic with the Group's brokerage business.
When investors seek to buy shares from our broking arm Ashika Credit Capital providesloans creating an effective Group synergy. The result is that the Ashika Credit Capitalhas helped in cementing the Group's identity as a one-stop-solution provider.
Ashika Credit Capital mobilises funds at single-digit cost and lends in themid-double-digits generating an attractive net interest margin. Ashika Credit Capitaladdresses a large captive family of customers; the lending is against securities held ascollateral with an adequate buffer that eliminates the scope of nonperforming assets.Ashika Credit Capital's net worth of B410 million speaks for the credibility of theCompany whereas there is no disequilibrium in the inflow and outflow of funds.
In view of these realities the management perceives that Ashika Credit Capital is atthe bottom-end of a long J-curve. Even though it earned B110 million in revenues duringthe year it is optimistic of growing the loan book to B5000 million over the next twoyears enhancing value for stakeholders. Ashika Credit Capital is at a dynamic phase inits existence that will generate incremental returns for stakeholders.