The Engine of India’s Growth: Why the Bajaj Finserv BFSI Fund Captures a Structural Opportunity
The Indian economy is in the middle of a massive, multi-decade transformation. As the nation marches towards becoming the world’s third-largest economy by 2030, one sector stands at the very heart of this expansion: Banking, Financial Services, and Insurance (BFSI).
The Bajaj Finserv Banking & Financial Services Fund NFO, open from November 10 to November 24, 2025, is specifically designed to provide targeted exposure to this indispensable ecosystem. This isn’t just a bet on banks; it’s a strategic investment across the entire spectrum of financial intermediation—from digital payments to rising insurance penetration.
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Section I: The Macro Imperative: Why BFSI is India’s Growth Multiplier
For India’s economy to achieve its ambition of reaching $30 trillion GDP by 2047, the country’s financial assets must expand exponentially—by nearly 20 times. The BFSI sector is the engine that generates the credit, pools the savings, and manages the risks necessary to fuel this growth.
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Three key structural factors make this sector an ideal long-term investment:
1. The Demographic Dividend and Rising Affluence
India’s favorable demographics—a young, working-age population—are translating directly into wealth creation. Our analysis shows that by 2030, a staggering 75% of Indian households are projected to move into the middle and high-income segments. This exponential rise in disposable income creates massive, organic demand for credit, wealth management, insurance, and retirement products.
2. The Digital Infrastructure Revolution
India’s digital public infrastructure (India Stack) has permanently altered how financial transactions occur.
- UPI Dominance: Non-cash transactions are rapidly displacing cash. UPI-led transactions now account for 73% of non-cash transaction volume in India as of 2023, up from just 6% in 2018. This explosion expands the Addressable Market (TAM) for fintechs and payment processors.
- Financial Inclusion: Government initiatives like Jan Dhan have successfully integrated millions into the formal financial system. The RBI’s Financial Inclusion Index has steadily risen to 64.2 in FY24, demonstrating consistent, formal engagement with the financial ecosystem.
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Section II: BFSI’s Rising Dominance in the Benchmark
The increasing importance of the financial sector is clearly reflected in its influence on the broader equity market. It has become one of the most critical sectors for domestic and global investors tracking Indian indices.
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- Market Capitalization Surge: The market cap of the Indian BFSI sector has expanded dramatically, growing by more than 50X over the last two decades, from ₹1.8 Trillion in 2005 to ₹91 Trillion in 2025.
- Nifty 50 Weight: This growth has translated directly into benchmark representation. The BFSI sector’s weight in the Nifty 50 index has surged 2.6 times over two decades, increasing from 14.6% in FY04 to a significant 37.9% in July 2025.
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- Earnings Power: BFSI is also becoming the primary driver of corporate profitability. The sector’s contribution to the total Profit After Tax (PAT) of the Nifty 50 has risen sharply, jumping from 16% in FY10 to 33% in FY24.
Section III: Improved Fundamentals: The Strength of Indian Finance
The growth narrative is backed by hard numbers showing fundamental improvements in asset quality and operational efficiency across the sector.
A. Banks: Healthier Balance Sheets
The sector’s underlying health has dramatically improved, driven by strong regulatory reforms and prudent lending practices:
- Declining NPAs: Gross Non-Performing Assets (GNPA) for Scheduled Commercial Banks (SCBs) have sharply declined from 5.8% in FY22 to a robust 2.2% in FY25.
- Falling Credit Cost: Credit Cost, a key metric for provisioning against bad loans, has been nearly halved, falling from 1.3% in FY22 to just 0.4% in FY25.
- Profitability: This improved asset quality and strong credit off-take have led to surging profitability, with the Profit After Tax (PAT) of the Nifty Financial Services Index growing nearly 3X between March 2020 and March 2024.
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B. NBFCs: Growth Engine of Inclusion
Non-Banking Financial Companies (NBFCs) have been pivotal in driving financial inclusion and expanding credit access, especially for MSMEs and retail segments.
- Capital Growth: NBFCs have witnessed sharp growth, with their Net Worth growing by a ~15% CAGR and their Profit After Tax (PAT) growing at an outstanding ~32% CAGR from FY05 to FY25.
- MSME Focus: NBFCs are emerging as key players in MSME lending, recording a 32% CAGR from FY21 to FY24, highlighting their critical role in serving underserved segments.
Section IV: Beyond Banking: The Thematic Growth of Financial Sub-Sectors
The Indian BFSI landscape is no longer dominated solely by traditional banks. The sector has diversified, creating multiple, high-growth investment avenues that the Bajaj Finserv Fund aims to capture:
| Sub-Sector | Growth Driver | Key Data Point | |
| Non-Banking Financial Companies (NBFCs) | Focused retail and MSME credit in underserved markets. | NBFCs’ PAT grew at a ~32% CAGR from FY05 to FY25. | |
| Insurance (Life & General) | Extreme under-penetration compared to developed markets. | Life Insurance AUM has grown ~10x since FY07 to ₹61.6 Trillion. | |
| Asset Management (AMCs) | Financialization of domestic savings, especially via SIPs. | India’s Mutual Fund AUM-to-GDP ratio reached a high of 19.9% in March 2025. | |
| Capital Markets/Fintechs | Rising retail participation and digital transaction volume. | India is the 4th largest by market capitalization globally, signaling deepening investor confidence. |
Crucially, the market cap contribution of banks has fallen from 85% in 2005 to just 57% in 2025, underscoring the shift of value creation toward NBFCs, insurers, and fintech.
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Section V: The Mutual Fund Powerhouse: India’s AMC Growth Story
The Asset Management industry is experiencing structural, secular growth, fueled by rising household savings and the continued shift from physical assets (like gold) to financial instruments (like mutual funds).
- AUM Multiplier: The Indian Mutual Fund industry’s AUM has witnessed explosive growth, expanding by ~45X over the past two decades.
- AUM to GDP Penetration: This growing financialization is evident as Mutual Fund AUM as a percentage of GDP has increased from around 7% a decade ago to a high of 19.9% by March 2025.
- Global Outperformance: India stands out globally, showcasing the highest growth (24% CAGR) in Mutual Fund AUM over the last 10 years when compared against peers like China, the US, and Japan.
Section VI: The Protection Story: Insurance Scaling Rapidly
The insurance sector (both life and general) is severely under-penetrated in India, offering a multi-year growth runway as regulatory environment matures and incomes rise.
- Life Insurance Scale: The AUM of the life insurance industry has grown nearly 10X since FY07, reaching ₹61.6 Trillion by FY24, reflecting long-term savings and protection requirements.
- General Insurance Leap: The General Insurance industry has also witnessed substantial growth, increasing its Gross Direct Premium Income (GDPI) by approximately 10X over the last 15 years.
- Global Projection: Driven by these trends, India is projected to become the 6th largest insurance market in the world by 2032, surpassing developed economies like Canada, Germany, and South Korea.
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Section VII: The Disciplined Stock Selection: INQUBE Framework
The fund’s investment process is not passive but highly structured, utilizing a proprietary multi-stage filtration process designed to capture secular growth while mitigating concentration risks.
The process, termed the INQUBE framework, ensures the portfolio is built on high-conviction ideas derived from deep fundamental research:
- Stock Universe: Starts with a broad base of ~1,100 listed stocks.
- Megatrend Filter: Applies sector and megatrend screens to identify a universe of ~180–200 BFSI-relevant stocks that align with long-term structural trends (like digitalization and financial inclusion).
- High-Conviction Shortlist: Through deeper fundamental research, the fund targets a focused final portfolio of 45–60 stocks, providing a balance of diversification and growth potential across various sub-sectors (private banks, NBFCs, insurance, AMCs, FinTech).
- Valuation-Aware Entry: Managers actively seek attractive entry points where valuations are supportive relative to historical averages and forward earnings visibility.
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Section VIII: India’s Global Financial Standing and Untapped Potential
India’s financial markets are not just growing but are gaining importance on the global stage, reflecting strong investor confidence and deepening financialization.
- Global Market Standing: India is currently the 4th largest by market capitalization globally (as of FY24), standing above the global average in terms of market capitalization penetration.
- Market Cap to GDP Multiple: India’s Market Cap to GDP multiple stands at 1.3x, outperforming other major emerging market equities, demonstrating the strong faith in India’s growth trajectory.
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Despite this rapid growth, the severe under-penetration compared to developed economies represents the sustained runway for growth over the next decade:
- Low Credit Penetration: Total credit to Indian households stands at only 39% of GDP, significantly lower than the US (73%), Japan (66%), and the UK (78%).
- Insurance Gap: Life insurance premium as a percentage of GDP is just 3% (vs. 7% in Japan and the UK), while non-life insurance premium is only 1% (vs. 9% in the US).
- Mutual Fund Penetration: Mutual Fund Assets as a percentage of GDP are only 20% in India, compared to 132% in the US, 75% in Germany, and 60% in Japan.
This structural gap across lending, protection, and savings ensures the BFSI sector has an enormous domestic market to capture as incomes rise.
Section IX: Tactical Tailwinds: The Rate Cycle Advantage
Beyond the structural factors, current macroeconomic trends suggest a near-term boost to financial sector earnings.
- Monetary Easing: The RBI’s MPC has already cut the Repo Rate by 100 basis points to 5.5% in the past four months.
- Credit Growth Acceleration: With improved macros and RBI easing, credit growth is expected to improve by 150-200 basis points over the coming 12 months.
- Profitability Boost: This drop in interest rates is a triple benefit for financial institutions: it boosts loan demand, allows banks and NBFCs to realize treasury gains on their debt portfolios, and supports wider Net Interest Margins (NIMs) as the cost of funds declines.
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Section X: Why the Bajaj Finserv BFSI Fund Stands Out
This NFO offers a differentiated strategy tailored to the complex, growing BFSI ecosystem:
1. Broad-Based and Diversified Exposure
Unlike some funds that focus predominantly on the core banking segment (Private and PSU Banks, which still account for ~67% of the benchmark), this scheme adopts an “Ecosystem Approach.” It specifically targets companies across the entire BFSI value chain, including NBFCs, Insurers, Asset Managers, and Capital Market intermediaries like BSE Ltd. This broad basket offers stability while capturing high-growth opportunities outside of pure lending.
2. The Megatrends Investing Philosophy
The fund employs a proprietary, multi-step filter for portfolio construction:
- Stock Universe: Starts with ~1,100 listed stocks.
- Megatrend Filter: Applies structural and megatrend screens to identify a focused universe of ~180-200 BFSI-relevant stocks.
- Final Portfolio: A high-conviction shortlist of 45–60 stocks is selected for the final portfolio, balancing diversification with growth potential. This disciplined process aims to secure consistent long-term returns.
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3. Attractive Entry Point
The fund managers highlight that despite significantly improved fundamentals (lower GNPA, higher PAT), the NIFTY Financial Services Index is trading below its 14-year average valuations (both P/E and P/B). This convergence of improved fundamentals and below-average valuations creates a classic risk-reward opportunity for long-term investors entering the NFO.
Section XI: Fund Basket: Benchmark and Indicative Holdings
To ensure transparency and proper benchmarking, the fund utilizes the NIFTY Financial Services TRI as its benchmark index. This index is broadly diversified across the financial sector:
- Private Bank Sector: ~67%
- Non-Banking Financial Company (NBFC): ~11%
- Public Sector Bank (PSB): ~8%
- Life Insurance: ~4%
- Other Financial Intermediaries: ~10% (Investment Management, Holding Co., etc.)
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While the actual NFO portfolio may vary, the indicative top-10 constituents reflect the fund’s strategy of balancing large-scale, private banking dominance with key high-growth non-bank and capital market franchises:
Investment Considerations
The Bajaj Finserv Banking & Financial Services Fund is an open-ended equity scheme with a Very High risk-o-meter rating due to its sectoral concentration.
- Who Should Invest: Investors with a long-term horizon (5+ years) who are comfortable with higher volatility and wish to make a concentrated, “satellite” allocation (5–15% of their total equity portfolio) to India’s financial growth story.
- NFO Details: The fund is available for subscription from November 10 to November 24, 2025, with a minimum application amount of ₹500 (and in multiples of Re. 1). An exit load of 1% applies if units are redeemed or switched out within 3 months of allotment; nil thereafter.
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The confluence of India’s robust macroeconomic tailwinds, the sector’s digital leap, and solid balance-sheet fundamentals position the BFSI space for sustained expansion. This NFO provides a structured and diversified way to participate in that powerful narrative.
Disclaimer: Mutual Fund investments are subject to market risks. Please read all scheme-related documents carefully before investing. Past performance may or may not be sustained in the future. This content is for informational purposes only and should not be construed as investment advice or a solicitation to buy/sell any securities. Investors should seek independent professional advice before acting on any information herein. GarudVista Financial Services LLP and its partners are not liable for any decisions based on this material. AMFI Registered Mutual Fund Distributor – Smita Gupta (ARN–272753).
Sources : Bajaj Finserv AMC , Bajaj Finserv AMC Research , Economic Times , Reuters , PIB , Bloomberg , World Bank 2030 estimates , RBI Documents , BCG Reports , IDAI , MOFSL , Swiss Re Sigma World Insurance Report , AMFI , NSE , ICRA MFI Report , ACE Equity , Jefferies .
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