Anshu Kapoor of Edelweiss Capital explains the scale and scope of the opportunity in India’s wealth management industry, and weighs up what foreign and local players can each bring to the market.
Date: Mar 2011
Plus, there are around 1,000 families with US$30 million and above, and 250,000 households with US$1 million or more in investible assets, he added. And this is even without looking at the mass affluent space.
Given the market is so fragmented, Kapoor said that even if a firm can penetrate 2%, this could mean about US$5 billion in assets under management.
There is also another capital pool, he added, in terms of the offshore wealth coming into India. In 2010, for example, about US$30 billion came in from institutional money, which Kapoor said shows the potential if it were easier for a foreign individual to invest directly into India.
When breaking down the figures, he said that since Indians save around US$300 billion annually, based on the fact that the average household saves around 30% of GDP, this means the economy is worth around US$1 trillion.
Yet the amount allocated to capital markets is currently meaningless. Even if only 20% gets allocated to the capital markets, this means US$60 billion domestically. In addition, Kapoor thinks India could attract about US$60 billion of offshore money – so this US$120 billion shows the overall opportunity in the wealth management space.
An evolving product offering
According to Kapoor, most private bankers tend to focus on a single asset class – real estate. But this means that most high net worth (HNW) individuals are overweight this asset class.
As a result, advisers need to show clients the merits of looking at other options – which has begun to happen in recent years. However, given various regulatory restrictions, a large chunk of portfolios for clients which are more aggressive is in direct equities, rather than managed products as is the case in more developed markets.
In turn, this creates a large market for transactional business in India via daily equities trading.
For more conservative investors, Kapoor said fixed income tends to be a fairly large component of portfolios. However, this market is not very liquid, he added, so people access it generally via mutual funds.
In addition, structured products have become available more recently, for example based on gold or silver – but in general a lot of things available to investors globally are not available in India.
Foreign versus local players
When looking at the balance of local and international competitors in the Indian wealth management market, Kapoor said foreign banks do bring experience and knowledge in dealing with very wealthy clients generally.
Foreign banks also have a lot of experience in terms of how to create and groom talent, he added.
However, from a product and solutions perspective, he said local players are more nimble in terms of speed to market. And since local relationships matter, Indian firms are better positioned to benefit in this area.
In general, said Kapoor, a foreign player which is very new to the market and doesn’t have any other presence in India will find it difficult to establish itself.