Edelweiss lists today. The listing, expected around 1600, will once again highlight the kind of expectations the market has from the financial sector over the next few years. Not just from listed brokerages, where valuations have exploded in the last few weeks, but also from other non banking financial entities. Edelweiss will command a market cap of 13,000 crores on listing with only Indiabulls ahead of it at a 19000 crore market cap. These seem very lofty but one can understand where it all comes from. People who have seen themes like Bharti play out, want to catch the next big consumer "penetration" story. It doesn't require a genius to figure out that financial products have a long way to go in terms of penetration : whether it's consumer loans, equities or insurance. Ergo, the optimism and such valuations.
Look at IDFC. Shortly after it acquired a controlling stake in Sharekhan , it's market cap has ballooned to 30,000 crores, nearly 6 times it's book value. Rich. Reliance Capital is at 60,000 crores - riding on the expected success of Reliance Money and a banking license at some stage. That is 10 times it's FY08 book, by the way. Why do you think Kotak Mahindra bank commands an 11 billion dollar market cap and a P/BV of 8 times? Precisely because of it's strong presence in businesses like broking, asset management, consumer lending and insurance. Skeptics will say the market is getting ahead of itself. Believers will call them myopic and contend they cannot see the explosive growth which lies ahead. Both arguments have something going for them.
One thing is for sure : this space has enormous potential. The price can be questioned , not the power of the theme. Along with infrastructure, financial services is probably the other big theme - with a large universe of listed stocks, that has the highest growth visibility. Therefore they are the most expensive. Everytime there is a market correction though, these are good stocks to latch on to. It's like how you wait for the annual sale of your favourite clothing brands. Also, looking at these valuations you almost feel sorry that PSU bank managers don't "think" market capitalisation. With their distribution muscle and captive consumer base, imagine how easily they could set up these businesses which the market loves so. Then imagine how their market caps could explode. You never know, maybe it's waiting to happen.
Executive Editor, CNBC-TV18