Hemant Mishra/Mint
Hemant Mishra/Mint

India’s individual wealth may grow at a CAGR of 12.9% over next 5 years

Global private financial wealth grew by nearly 5.2% in 2015 to reach a total of $168 trillion (nearly Rs11,250 trillion), out of which Asia-Pacific accounted for $37 trillion (about 2,500 trillion)

In financial year (FY) 2015-16, total wealth held by individuals in India has grown by 8.5% to Rs304 trillion and is likely to grow to Rs558 trillion at a compounded annual growth rate (CAGR) of 12.90% over the next 5 years, according to the recently launched seventh edition of ‘India Wealth Report 2016’ by Karvy Private Wealth, the wealth management arm of financial services provider Karvy Group.

“Wealth in financial assets has risen owing to a reasonable growth in fixed deposits and bonds, mutual funds, provident funds and small savings schemes...Similarly, individual wealth in physical assets grew sharply at 10.32%, led by a 15% growth of wealth held in gold of which about 11% is due to increase in global gold prices," said Abhijit Bhave, chief executive officer, Karvy Private Wealth (India and Middle East).

Around 84% growth was also witnessed in alternate assets. This could, however, be explained by a low base, he added.

This report aims to provide an overall perspective of the wealth held by individual in India and the expected pattern of future investments. It provides annual wealth trends for individual investors in India.

Global wealth

Global private financial wealth grew by nearly 5.2% in 2015 to reach a total of $168 trillion (nearly 1,250 trillion), out of which Asia-Pacific accounted for $37 trillion (about 2,500 trillion).

While India is considered the bright spot among emerging economies, in the short term, the economy is bound to slow a bit, given the government’s recent efforts to demonetise old, high-value notes. The victory of Donald Trump in the US presidential elections is also likely to result in some bumps in the road ahead for global markets and to the Indian market.

However, in the long run, India is expected to outshine its emerging market peers, including China, owing to changing positive dynamics, especially the government’s reforms push.

Demonetization

Even demonetization will have a long-term positive impact, as more wealth enters the formal financial system. “With non-accounted cash going out of the system, people would tend to move from physical assets to financial assets, which could result in significant inflows in mutual funds. As interest rates and inflation come down, investments in equities and long duration debt would be preferred," said Prateek Pant, head-products and solutions, Sanctum Wealth Management.

The proportion of investments in physical assets such as gold and real estate will reduce. In FY16, investments in financial assets grew at 7.14% to Rs172 trillion, mainly dampened by the bleak performance of direct equities. Physical assets grew at a much faster 10.32% to Rs132 trillion, said the report.

FD, bond rule

In FY16, fixed deposits and bonds reversed positions with direct equity to become the most preferred financial asset. Insurance retained the third spot, while all other classes gained marginally over FY15.

The government’s effort to demonetize old, high-value notes will ensure that wealth in some idle non producing assets to the tune of Rs14 trillion will move into the formal system by way of bank deposits. In the long run, these non- producing assets will move to producing assets and some of these will be invested in equities and mutual funds.

Over the next 5 years, total individual wealth in India is expected to grow to Rs558 trillion from the current Rs304 trillion, at a CAGR of 12.90%, said Bhave. Financial assets are expected to grow at a faster pace of 14.73% CAGR to nearly double in absolute terms, he added.

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