The year’s most important financial report is here!
The landscape of India’s financial ecosystem has been changing every year. And, there’s only one report that covers it all. Karvy Private Wealth presents the most awaited India Wealth Report 2016
Bob Dylan sang, “The times they are a-changing”. Quite in rhyme with these lines, the 7th edition, Karvy Private Wealth’s India Wealth Report provides us on how wealth held by Indian individuals across asset classes will move in the next 5 years.
As our India Wealth Report notes, in FY16, investments in fixed deposits grew by almost 11% to be the most preferred financial asset, while wealth in direct equities dropped almost 14%, reversing the performance in the previous year, when wealth held in direct equities rose by a staggering 29%. The trend seen in FY16 is by no means an indicator of how the future will shape up. True, direct equities are likely to face tough times over the next one year (while fixed deposits will gain from demonetisation and continue to occupy the top spot during this period), as the markets brave multiple developments such as the government’s demonetisation exercise, the rate hike by the US Federal Reserve (at last!) and not the least the victory of Mr. Donald Trump in the US presidential elections.
Direct equity is expected to regain the throne from fixed deposits anytime before FY20, clocking a CAGR of 24%. Two factors could explain the resurgence of wealth in equities in the long run: One, we could see the return of a virtuous cycle with respect to equities (as was visible during 2003 to 2007) in the next five years. We expect company earnings to improve in the next financial year and besides a rise in allocation to Indian stock markets by foreign institutional investors (FIIs), we also expect Indian individual investors (both retail and HNI) to park their funds in equities.
Two, the money that currently lies in savings bank accounts across the country — which is only increasing post demonetisation — is likely to move into fixed deposits in the short term as investors eye some return over and above the savings interest rate. As the macro-economic situation weathers the impact of demonetisation over the next one year and the government continues its reforms push, this wealth will find its way into the equity market directly and through vehicles such as equity mutual funds (MFs) and equity portfolio management services (PMS).
Alternative investments are another spot of focus. This universe comprises diverse products such as private equity funds, venture capital funds, high-yield debt, structured products, among others. Investments in this set are at a nascent stage in India, as the audience is currently restricted only to high-networth individuals (HNIs). In FY16, wealth held in alternative assets rose by a whopping 84% y-o-y.
In the years ahead, the financial landscape in India is bound to considerably change owing to reforms such as the Goods & Services Tax (GST), Real Estate (Regulation and Development) Act, the Bankruptcy Code, etc. The demonetisation exercise will also ensure that more wealth comes under the formal financial system, foster financial inclusion and launch a systematic campaign against black money and active discouragement of tax evasion.
As wealth in financial assets grow at a faster pace vis-à-vis wealth in physical assets, we expect total individual wealth to reach Rs 558 lakh crore by FY21, growing at a CAGR of 12.90%. Of this, we expect financial assets to have the major share; wealth held in this segment is likely to double to Rs 342 lakh crore by FY21.
Want to know more? Download the latest edition of the India Wealth Report 2016.