The upcoming stock market listing of ICICI Prudential Asset Management Company, the entity behind ICICI Prudential Mutual Fund, is more than just another initial public offering. It serves as a powerful reminder of a defining feature of India's post-liberalisation economy: the overwhelming dominance of three financial conglomerates – the SBI Group, the HDFC Group, and the ICICI Group. While their journeys began from vastly different origins, they have collectively shaped and now command the country's financial services landscape.
The Listing That Highlights a Triopoly
With the IPO of ICICI Prudential AMC scheduled for later this month, the ICICI Group will have four listed financial services entities. This move will set it slightly apart from its two peers, the SBI Group and the HDFC Group, each of which currently has three listed businesses. This milestone underscores how these three behemoths have their presence in every significant segment of finance, from banking and insurance to asset management.
Their rise was fuelled by the massive opening up of India's financial sector after the 1991 economic reforms. However, their paths to dominance have been distinct. The State Bank of India (SBI) has its roots in government ownership, HDFC originated as a housing finance company, and ICICI began as a development financial institution for long-term industrial projects. Their evolution into full-spectrum financial powerhouses is a story of adaptation, aggression, and strategic expansion.
Stock Performance: Banks Lead, Newer Listings Lag
A long-term view of stock returns reveals interesting trends about their performance. Among the nine key listed businesses across the three groups, only their core banks – SBI, HDFC Bank, and ICICI Bank – have a multi-decade track record on the exchanges. Their mutual fund and insurance arms have been listed mostly in the last five years.
Contrary to popular belief, these giants have not always beaten the market. Over the past five years, only three of the nine businesses outperformed the benchmark BSE Sensex: SBI, SBI Life Insurance, and ICICI Bank. Zooming out, over 10 and 15-year periods, all three banks topped the Sensex. However, over 20 and 25-year horizons, only HDFC Bank managed to beat the Sensex, which delivered a compounded annual growth rate (CAGR) of 16.7%. ICICI Bank and SBI trailed the index during these extended periods.
Banking: SBI's Resilience and the Profitability Gap
In the banking arena, SBI's position as India's largest bank faced a serious challenge in the mid-2000s from the aggressive expansion of ICICI Bank. By 2007, ICICI Bank's asset base had reached about 60% of SBI's. However, issues with bad loans checked ICICI's growth, while SBI began to leverage its vast network more effectively. It is only recently, with HDFC Bank merging with its parent HDFC Ltd., that another bank has come close to bridging the asset gap with SBI.
A key differentiator has been profitability. The Net Interest Margin (NIM) – a crucial measure of a bank's core profitability – tells the story. ICICI Bank's NIM is currently higher than HDFC Bank's (which saw a dip post-merger) and more than a full percentage point above SBI's. This higher profitability is a primary reason why HDFC Bank and ICICI Bank command significantly richer valuations than SBI, with price-to-earnings (P/E) ratios of 21 and 17 respectively, compared to SBI's 11.
Mutual Funds and Insurance: Different Journeys, Same Summit
The story in asset management is one of contrasting timelines leading to a similar outcome. SBI Mutual Fund, launched in 1987, was an early player. ICICI Mutual Fund entered in 1993, soon after the sector was opened. HDFC Mutual Fund was a late entrant in 2000. Today, they are the top three fund houses in India, collectively controlling about 40% of the industry's assets. The standout performer in recent years has been SBI Mutual Fund, which catapulted from rank 7 in 2007 to the top spot by 2017, driven by strong scheme performance and its unparalleled distribution network.
In life insurance, where all three entered almost simultaneously after LIC's monopoly ended in 1999, SBI Life has pulled ahead in the last five years. It has broken away from the pack after all three were nearly the same size around 2012-13. A similar trend is visible in general insurance, where SBI General has grown faster than its peers, albeit on a smaller base.
The listing of ICICI Prudential AMC is a fresh chapter in this ongoing narrative of consolidation and competition. While the three groups have established an unshakeable dominance, the future market returns of their newer financial businesses will depend on their ability to maintain this lead in an increasingly competitive and regulated environment. Their continued evolution will remain central to the story of India's financial services industry.
