BackIndividual investments in financial assets continue to grow faster in FY17
The preference of Indians is also slowly but definitely shifting to financial assets over physical assets on year-on-year basis, says Karvy India Wealth Report 2017
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In FY17, the individual wealth in India expanded to Rs344 lakh crore from Rs310 lakh crore in FY16. Individual wealth witnessed a higher growth rate of 10.91% in FY17 against 8.50% in FY16. India also created higher number of high-net-worth-individuals (HNWIs) with a growth rate of 9.5% to 2.19 lakh HNWIs versus the global average of 7.5% and Asia Pacific region’s 7.4%.
Meanwhile, the preference of Indians is also slowly but definitely shifting to financial assets over physical assets on year-on-year basis.
Individual wealth in financial assets
Financial assets continued to retain their pole position in FY17 with more number of people reposing faith on this asset class.
The growth can be attributed to a rise in equity markets, improvement in corporate earnings apart from various policy measures taken by the government. RBI monetary policy announcements with broad hints towards monetary easing also supported this trend.
Individual wealth in financial assets grew by 14.63% to Rs203.90 lakh crore in FY17. Over 66% of individual wealth in financial asset was held in direct equity, fixed deposits, insurance and saving bank deposits in FY17.
Deposits: In FY17, bank fixed deposits and bonds topped the chart as the largest financial asset class to hold individual wealth. Demonetisation has given a big fillip to deposits in the banking system. While most of the deposits upon demonitisation happened in the saving accounts and current accounts, part of this money has also moved to fixed deposits.
The wealth held by individuals in India in bank fixed deposits grew at 10.68% in FY17 to reach Rs38.87 lakh crore. Savings deposits posted a growth rate of 27.85% as cash inflows into bank accounts surged post-demonetisation.
Mutual funds: In FY17, one of the major growth drivers was mutual funds recording a growth rate of 39.21% against 12.95% in FY16. This was attributed to positive performance of equity market and increased contribution from individual investors.
Mutual funds are almost emerging as the best investment option for common investors in the financial markets, who are caught between a relatively volatile direct equity market and low yielding traditional assets. Consider this: From about just Rs89,283 crore in 2003-04 — of which only 11% (Rs10,000 crore) was in equity schemes — total AUMs have galloped almost 20 times to Rs17.54 lakh crore in FY17. The entry of individual investor—especially from smaller towns—propelled mutual funds into newer heights.
In FY17 alone, about 7.7 million investor accounts were added taking the total number of accounts to 55.4 million, led by growing interest from retail as well as high net worth individual investors. This number stood at 5.9 million folios being added in the preceding fiscal. In the past 2 years, investor accounts have increased following robust contribution from smaller towns.
Direst equity: Interestingly, wealth in direct equity grew by 26.80% in FY17 to a massive Rs37.58 lakh crore, against a 13.84% fall in FY16. Direct equity now holds 18% of total wealth pie of individual financial wealth in India. Investments by all categories soared, with promoters and institutional investors leading the pack. This is a welcome development compared to previous year when wealth in all three categories had seen a significant drop owing to a lack of confidence in the equity markets.
Meanwhile, major drags to total individual wealth included cash, NRI deposits and small savings in FY17. All these asset classes had shown double digit growth on y-o-y basis in FY16.
Individual wealth in physical assets
Growth of individual wealth in physical assets slowed down to 5.92% in FY17 as against 10.32% recorded in FY16. Real estate and gold together held 92% of wealth in physical assets and over 37% of total individual wealth pie.
The growth rate in physical assets has slowed down on the back of subdued investor sentiments and high price of real estate, which kept people from new purchases. Also, events such as demonetisation have adversely impacted the demand for realty projects. Investors also followed a ‘wait and watch approach’ after announcement of key reforms, which has further dampened the demand environment in the short term.
Individual wealth in physical assets is expected to grow to Rs236 lakh crore by FY22 at a CAGR of 11%.
Edited excerpts from Karvy India Wealth Report 2017
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