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Where is India’s super rich investing? Anirudha Taparia gives a sneak peek

How has the wealth management space shaped up since COVID and what are your expectations for the near future? How big is India's wealth business?

The COVID-19 pandemic precipitated an unprecedented change in socio-economic patterns, leading to a new normal. As industries across the board scrambled to adapt to this new paradigm, the wealth management space also witnessed several changes.

Investors were consistently exposed to aspects such as job loss, lower incomes, and business uncertainty, and this prompted them to shift focus toward wealth preservation and safety.

Digitization and hyper-personalization were other important changes fostered by the pandemic, and many investors are now keen on customised digital wealth management services, necessitating a shift in how the sector approaches and maintains its customer relationships.

Separately, investors are also more aware of Environmental Social, and Governance (ESG) themes post the pandemic.

Accordingly, many of them are now keen on investing in socially and ethically responsible sectors, while also pursuing robust returns.

In the near future, we expect the wealth management space to mature and evolve, in line with the robust growth in India’s wealthy populace.

According to reports, the country’s HNI population base is likely to expand by 75%, between 2020 and 2025, reaching 6.11 lakh individuals over the next two years, even as India’s wealth grows to 5.5 trillion dollars, at a growth rate of 10% per year.

In a high-interest rate environment which might have hit a peak – how should investors in the age group of 30-40 years construct asset allocation?

A large part of the market believes that the RBI will avoid major repo rate movements in the near future, keeping interest rates at significantly high levels.

In such a scenario, investors in the age group of 30 to 40 years should consider other factors such as stock market volatility, personal risk appetite, return requirements, time horizon, and investment goals, while undertaking optimal asset allocation.

For low-risk investors, this is a good time to invest in debt mutual funds, particularly those with maturities of less than one year, such as liquid, money market, and ultra-short-term funds, thanks to the attractive yield curve in the segment.

Arbitrage and hybrid funds are also seeing traction as investors seek alternatives to traditional debt instruments.

For investors keen on higher returns and longer time horizons, index funds may be a good option, owing to the passive nature and cost-effectiveness of these schemes.

Typically, investors in this age group have the ability to tolerate higher risk, in the quest for higher returns, as they can stay invested for a longer duration.

In such a scenario, they can consider allocating 60-70% of their portfolio to equities, 20-30% to fixed income, and the remainder to gold and/ or real estate assets.

In the world of Ultra HNI investing – how important is succession planning and are Indian businessmen taking cognizance of the same at an early stage?

Succession planning is crucial for the long-term sustainability and growth of any organisation and, in the context of Indian businesses; succession planning has gained increasing importance in recent years.

Traditionally, Indian businesses were often family-owned and operated, with a strong emphasis on the founder's leadership.

However, as businesses grow and evolve, there is a growing realization of the need to plan for leadership transitions and ensure continuity.

Globalisation and the changing business landscape have made companies more complex, requiring a diverse set of skills and expertise to navigate challenges effectively.

Further, the rise of professional management and corporate governance practices has placed greater emphasis on transparent and merit-based leadership selection processes.

In recent years, Indian companies have shown a greater willingness to invest in leadership development programs, talent management initiatives, and mentoring/coaching programs for potential successors, starting at an early age.

They are also exploring non-family options for leadership positions and implementing robust governance structures to ensure a fair and transparent succession process.

Succession planning requires a long-term perspective and strategic thinking, which some businesses may overlook in the face of short-term operational challenges. Additionally, cultural and social factors can influence succession planning in family-owned businesses, where there may be conflicts between family dynamics and professional considerations.

Where is the smart investor moving – what does the data suggest? Are UHNIs more focused on AIFs, PMS, or structured products?

According to reports, India’s super-wealthy cadre is currently leaning towards equity and debt assets, foreign bank deposits, and real estate purchases in foreign locations.

In FY2022, Indians reportedly pledged 1.69 billion dollars into foreign bank deposits and investments, with an additional 20 billion dollars being transferred overseas via LRS.

Accordingly, we are seeing an increasing appeal for offshore investments.

While UHNIs were traditionally interested in large-ticket real estate assets, they are now diversifying their portfolios and considering alternate avenues to ensure better returns.

Accordingly, we are witnessing an increasing shift towards high-yield opportunities in the debt space, capable of offering inflation protection.

In the fixed income domain, such avenues include private and listed InvITs, REITs, Venture Debt, and Performance Credit. Turning towards equities, many UHNIs remain keen on investing in listed equities, through Alternate Investment Funds, Portfolio Management Services, direct stocks and mutual funds.

Accordingly, the PMS industry has experienced year-on-year growth of around 23.2%, enjoying a current AUM of almost 4.89 lakh crores. Similarly, AIFs have also enjoyed stellar growth, with 42.5% CAGR, and an AUM of almost 6.94 lakh crores.

Are you also seeing a rise in NRI money getting invested in Indian markets? If yes, which products are generally preferred?

A recent survey of NRIs residing in Singapore, the US, the UK, Australia, and other regions indicated that a large portion of the participants consider India to be a better investment opportunity in comparison with other countries.

A big reason for this preference is India’s robust economic performance and growing global dominance. India is being viewed as a stable economy amid global volatility and heightened fears of recession.

While NRIs have the ability to invest in everything from stocks, initial public offerings, bonds, mutual funds, and real estate, some of these opportunities are hindered by regulatory challenges, currency risks and difficulties in repatriating funds.

In this scenario, a portion of NRIs hailing from the UK are investing in home currency or pound-denominated Indian stocks and funds.

Other NRIs are choosing hedging options by way of forward contracts or currency routes, while other market players are opting for diversification across multiple currencies, in an attempt to optimally manage currency risk.

Separately, NRIs are also showing interest in the Indian real estate segment, owing to a consistent depreciation in the rupee, against the US dollar, as well as comparatively lower prices in the sector, in the aftermath of the pandemic.

What is your view on Gold and Silver – considering we have hit record highs on the precious metal?

While gold remains a smaller part of UHNI asset allocation, investing in gold and silver has proven to be highly profitable, with gold providing a staggering 1000% return in the last 20 years and silver seeing a remarkable 900% increase between 2003 and 2023.

These precious metals are considered a potent hedge against inflation, making them attractive investments in a stagflation scenario.

Gold has historically outperformed equities during unstable market conditions, while silver offers the advantage of industrial use during bullish markets and acts as a hedge against wealth erosion during bearish markets.

Investors can easily and effectively invest in gold and silver through exchange-traded funds. When choosing a Gold/Silver ETF, factors such as Volume, Impact Cost, Tracking Error, and Expense Ratio (VICTER) should be considered. Investing in gold and silver ETFs offers advantages such as transparency, no entry or exit load, guaranteed purity, and exemption from STT or wealth tax.

These ETFs are tax-efficient and provide stable inflation-adjusted returns, portfolio diversification, and protection against market volatility.

Therefore, investing in gold and silver ETFs provides a straightforward way to benefit from the inflation-beating qualities of these precious metals. With minimal risk and investment, investors can enjoy stable returns and safeguard against market volatility, all without the need for market timing.

Nifty is also not far off from hitting fresh record highs but incremental demat accounts are falling for the past few months. What does the trend suggest?

According to the Economic Survey 2022-23, the number of demat accounts in India increased by 39% year-on-year to reach 10.6 crore in November 2022, thanks to attractive equity market returns, simplified account opening procedures, and increased financial savings.

However, the report noted a decline in the incremental additions of the demat accounts in the current financial year compared to the previous year, likely due to market volatility and weak performance.

The survey also highlighted a decrease in the proportion of individual investors in the cash segment and a decline in cash segment turnover.

On the other hand, there was a significant increase in the volume of equity derivatives, as well as currency and commodity derivatives, indicating a shift in interest among traders.

Reports also indicated that total active users on the NSE fell for the eighth consecutive month, in February, largely due to market volatility and possibly because of the end of the prevalent work-from-home culture.

Many market participants are also turning towards fixed income investments, owing to the higher yields on debt assets.

Despite these changes, we are positive on the robust growth of the Indian equity segment and expect a large part of the market to continue participating in the same, especially once the ecosystem stabilises in the near future.

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