I have said this in the past too….and saying it again…

“I have NO clue about what attracts big companies to the financial services sector” – repeat a zillion times.

None of the so called ‘big groups’ have ever done well in financial services. Whether it is the Tatas, Birlas, Sundaram,….really only Hdfc as a group has mastered the art of financial services. They too have done well in housing finance (which requires tremendous discipline and a robust back end), banking (same as housing finance), mutual fund (a few good fund managers and a decent sales force).

Even Hdfc has not done well in the brokerage business (which needs tremendous personal skills). Brokerage at the HNI level requires some fantastic managers knowing how to take calls and bets. For the retail business you require a very good willingness to invest in technology (so you have Kotak and Icici direct the winners here).

In life insurance, the winner is yet to emerge, but I think the dice is loaded in favor of LIC, just too favorably. Even though some of these companies will earn some profits, it is too heavily regulated. Though I am not against regulations, the current regulations leave very little scope for innovation. Not sure where this is headed, but personally I am happy that I do not have any options of any life insurance company. The only options currently that I would like to be sitting on are PUT options.

Actually when you see some managements in the financial services business make projections – of the business, EPS, P/e (and therefore price of the share 5 years hence!) feel like saying ‘will you pay my fees in PUT options please?’ Of course the only risk is they may not be eligible for listing.

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