New Delhi: According to a report by Motilal Oswal, the population of High Net-Worth Individuals (HNIs) and Ultra High Net-Worth Individuals (UHNIs) in India is experiencing a remarkable compounded annual growth rate (CAGR) of 12 percent.
This growth is attributed to India's strong economic development and thriving equity markets, which are contributing to an even more rapid increase in their wealth.
The report states, "With robust economic growth, the number of HNIs and UHNIs has been growing in India (at 12 percent CAGR), and their wealth is growing at a faster pace, aided by buoyant equity markets."
However, despite this swift expansion, the report highlights that the penetration of organized wealth management services in India is still relatively low at only 15 percent, in contrast to 75 percent in developed countries. This gap presents a significant opportunity for wealth management firms to broaden their services and engage with this expanding market segment.
A notable trend identified in the report is the transfer of wealth between generations, which is anticipated to significantly influence the uptake of organized wealth management services.
The younger demographic is increasingly favoring contemporary investment options such as Alternative Investment Funds (AIFs), Portfolio Management Services (PMS), Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (INVITs), and international investments, moving away from traditional choices like fixed deposits, gold, and physical real estate.
The report highlighted the importance of extending wealth management services to lower-tier cities and incorporating the mass affluent demographic as essential components for future growth. It noted that investments in technology to facilitate a "phygital" (physical and digital) approach, along with the implementation of the Account Aggregator (AA) framework, are anticipated to be crucial for scaling operations.
It stated that "the move into lower-tier cities and the expansion of customer segments to include the mass affluent by organized wealth managers will serve as the next catalyst for growth."
In recent years, wealth management firms have been concentrating on increasing their number of relationship managers (RMs), which is expected to yield economies of scale and enhance return on equity (RoE) in the medium term. These organizations, capable of serving clients across various asset classes, benefit from high client retention and robust cash flows, leading to premium valuations.
The report further indicated that with RoEs exceeding 25 percent and strong cash generation, organized wealth management in India is set for substantial growth, fueled by changing customer preferences, technological innovations, and market expansion.
