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  • SEPTEMBER 29, 2021

3 Stocks Riding the Fintech Megatrend in India

India's fintech industry is the fastest growing industry in the world.

This comes as no surprise.

With an increasing number of Indians now using digital modes of payment, the fintech adoption rate stands at 87% in India, against the global average of 64%.

Driving this growth are companies offering innovative technologies to increase reach, improve customer experience, and foster the use of digital channels.

Here are 3 stocks riding the fintech megatrend in India.

#1 CDSL

CDSL is the largest securities depository in India and a key beneficiary of the fintech megatrend.

The company facilitates the holding of securities in a digital format and enables transactions to be processed by book entry.

Since there are only two companies in India making the most of this business opportunity - CDSL and NSDL, the first-mover advantage in this business is significant.

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That is because there is a huge network advantage for early entrants which makes it difficult for new players to compete and win on pricing.

It's also a business with immense scalability. Once the IT infrastructure is in place, the capital expenditure for further growth is nil or minimal.

As a result, in its latest quarterly results, CDSL reported a 37% year on year (YoY) jump in its consolidated net profit at Rs 639.9 m.

As capital markets continued to witness growth led by the increased participation of investors, CDSL saw an increase in revenue.

An arm of the company was also recognised as a bullion depository at the International Financial Services Centre at GIFT City in Gujarat. The company said the holding and transfer facility will be later extended to silver and any other commodity that is approved by the IFSC authority.

#2 CAMS (Computer Age Management Services)

CAMS is a mutual funds registrar and transfer agent. The company is seen as one of the best plays on the country's adoption of financial technology.

With KFin Technologies (KFintech) as its closest competitor, CAMS holds a 70% market share. Its book is also almost three times larger than KFin Tech's.

Over the years, the company has expanded its service offerings.

It currently provides a portfolio of technology-based services through its pan-India network to mutual fund clients, distributors and investors.

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CAMS also has the highest revenue in the industry and has witnessed revenue growth of 12.8% (CAGR) between the financial years 2015-2020.

In its latest quarterly results, the company reported a 59% YoY jump in net profit to Rs 632 m as it maintained a strong focus on keeping its costs under check.

It also recently joined hands with KFin Technologies to launch an investment management platform - MF Central.

The platform provides investors with a dashboard of all their mutual fund investments and also accepts service requests.

The platform is the first initiative of its kind and will be available free of cost to users.

#3 Paytm

Although not listed, Paytm is a direct play on the fintech megatrend.

The company is the largest payments platform in India with a gross merchandise value (GMV) of Rs 4 tn.

It was launched in 2009 as a mobile-first digital payments platform to enable cashless payments to consumers. The name is short for 'pay through mobile'.

It has over the years developed into a payments-led 'super app' covering payments, credit, insurance, merchants, wealth management, and e-commerce services.

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Paytm has recently filed for a Rs 166 bn initial public offering (IPO) that is set to be India's largest ever.

The company is backed by investors such as Berkshire Hathaway, China's Ant Group, and Japan's SoftBank.

The IPO will include an issue of new shares worth Rs 83 bn and an offer for sale worth Rs 83 bn.

The company said it would use the proceeds to strengthen its payment ecosystem and for new business initiatives and acquisitions.

The share sale could make it India's largest stock market debut ever, surpassing the IPO of government-owned Coal India in 2010.

According to the company's financials, Paytm posted a consolidated net loss of Rs 17 bn for the financial year 2021. It had posted a loss of Rs 28.4 bn in the year 2020.

What is enabling the success of fintech companies in India?

Technological innovations such as blockchain and artificial intelligence have given rise to a number of fintech companies in India while initiatives led by the government such as demonetisation, Jan Dhan Yojana, and Aadhaar, have accelerated their adoption.

Moreover, due to the pandemic, fintech companies have benefitted from a push towards digital transactions.

The payments industry is at the forefront of this trend, with mobile wallet features such as Unified Payment Interface (UPI) being used by millions of Indians for day-to-day transactions.

There are also various other sub-segments that are gaining traction such as lending, wealth technology (WealthTech), insurance technology or (InsureTech), regulation technology or (RegTech).

How the fintech space grows remains to be seen. Meanwhile, stay tuned for more updates from this space.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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