Mumbai: The number of dollar millionaires in India dropped by one-third in 2008, the second highest drop in the world after Hong Kong, according to a report by Merrill Lynch Global Wealth Management and Capgemini.
According to the World Wealth Report 2009, the number of Indian high networth individuals (HNIs) at the end of 2008 was down to 84,000 from 123,000 at the end of 2007.
This is the first time there has been a drop in the country’s HNI population since India became part of this annual survey seven years ago. The survey is now in its 13th year.
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The collapse of the Indian equity markets in 2008 was responsible for this drop. In 2006 and 2007, when the bull run was well and truly on in India, the number of HNIs in India grew at the second fastest and fastest rates in the world, respectively, among the 71 countries (accounting for 98% of world GDP) that come under the ambit of the report.
Capgemini and Merrill Lynch describe millionaires as those who have investable surpluses of at least a $1 million (around Rs4.85 crore), excluding their primary residence and everyday possessions.
While Indians in general have a low percentage of savings channelled into equities, Indian HNIs had a disproportionately large chunk of their surpluses parked in this asset class, said Pradeep Dokania, managing director and head of the global private client group at DSP Merrill Lynch Ltd, explaining the extent of the drop.
The market capitalization of stocks listed on Indian exchanges declined 64.1% in 2008, said the report. That’s much in line with the drop in India’s equity benchmark, the Sensex, which shed 52% through 2008.
The world, which is in the throes of what is being described as the worst financial crisis since the Great Depression, saw its total HNI population come down to 8.6 million from 10.1 million at the end of 2007.
This is a level last seen in 2005. Total HNI wealth by assets declined 19.5%, from $40.7 trillion in 2007 to $32.8 trillion by the end of 2008.
This means greater challenges for wealth managers. The survey showed a quarter of HNIs withdrawing assets or leaving their wealth management firms altogether in 2008.
More than three-quarters of the clients surveyed said they had lost trust or confidence in their advisers and wealth management firms.
At least 65% said they were not satisfied with the performance of their investments. And at least half went on to say they desired more products and investment options, with a little under a half saying that they are not satisfied with the statement and reporting quality of their wealth management firms, and the transaction management fees charged.
“Advisers understand that service quality is by far the most important retention driver, but they underestimate the importance clients place on risk management and due diligence capabilities, online access and capabilities, and statement and reporting quality,” said Salil Parekh, chief executive officer, India and Asia Pacific, Capgemini.
“There are lessons for us from this,” said Dokania of Merrill Lynch.
Hong Kong was the worst affected country in terms of the percentage drop in HNI population. Its dollar millionaires declined 61.3% in 2008, to 37,000. “Hong Kong is unique in that it is a developing economy with an extremely high market-capitalisation-to-nominal-GDP ratio (5.76). That ratio indicates Hong Kong is particularly vulnerable to large market capitalisation declines like the one experienced in 2008 ( a fall of 49.9%),” said the report. By contrast, the ratio is 1.49 in Singapore, and just 0.83 in the US, it added. Furthermore, Hong Kong has a very large proportion of its HNIs in the $1-5 million wealth band, and many of these HNIs dropped below the $1 million threshold during the year due to market losses, the report added.
Graphics by Sandeep Bhatnagar / Mint