Photo: Mint
Photo: Mint

Financial assets outpace physical in individual portfolios

According to the 9th edition of Karvy Private Wealth'sIndia Wealth Report, total individual wealth, financial and physical assets, grew 14.02% in FY18 as compared to 11% in the previous year

Indian individuals are expanding their wealth and becoming savvier when it comes to investing it. According to the ninth edition of Karvy Private Wealth’s India Wealth Report, total individual wealth, financial and physical assets, grew 14.02% in FY18 as compared to 11% in the previous year. Moreover, the proportion of financial assets increased to 60.2% in FY18 as compared to 58.48% in FY17. 

“Financial assets have grown at a faster pace than last year. A bulk of this comes from equity. Relative to equity, growth in real assets has been slow. We expect this pattern to remain inclined to equities, which will take the proportion of financial assets to 67.98% of total individual wealth by FY23," said Abhijit Bhave, CEO, Karvy Private Wealth.

According to the report, the proportion of direct equity at 20.72% for FY18 has overtaken fixed deposits and bonds at 17.81%. “While it’s too soon to talk about equity replacing FDs, there is higher pull towards equity investments given that FD rates are close to multi-year lows. Moreover, the Mutual Fund Sahi Hai campaign has created awareness. Also, returns from equity MFs (lump sum and SIPs) have been good," said Amol Joshi, founder, PlanRupee Investment Services. 

Equity

The cream in returns for individual portfolios will continue to come from equity, predicts the report. The 2025 Sensex forecast in the report is a value of 100,000. 

“We expect higher earnings growth of 15-17% in the next five to seven years. At the same time we expect PE re-rating to around 22-24 levels. The forecast is based on earnings growth and PE re-rating which comes to a modest 15.7% annualised growth from current levels, which is achievable, if you think about the virtuous corporate earnings cycle that we expect soon," said Bhave.

The 2013 edition of the Karvy report predicted overall wealth for individuals could grow 103% by FY18, with financial assets accounting for 55.5% of this wealth. The latest report shows the growth in overall wealth for individuals has been slightly more than 94% with financial assets accounting for 60% of the allocation. Equity is perhaps the biggest contributor to the growing allocation for financial assets over physical ones. 

“We are confident about the secular growth story in India which will lend itself to a positive trend in equities. However, it may not be a widespread trend upwards, which means that one must carefully select stocks and managers. Uncertainty in markets throws up good opportunities too," said Prateek Pant, head-products and solutions, Sanctum Wealth Management.

While predicting equity trends in the short term could be a tough ask, one cannot wish away the risks. 

Real estate

Despite the gloom around the real estate sector, there is enough investment activity happening. Individual wealth in real estate has grown 10.35% in FY18, as per the report. 

A complementary trend, said the report, is growing assets under management for real estate funds; wealth allocated to these funds has grown 21.5% in FY18. Moreover, one more line item—high yield debt—shows a 26.6% increase and bulk of this pertains to real estate-linked debentures. 

“Clients (HNIs) are interested in yield assets and hence, reallocating from residential to commercial. At the same time, they have become more discerning about risk taking. In absolute terms, there could be an increase in allocation to real estate-linked debentures, but we are not seeing relatively higher demand in terms of number of investors willing to take on this type of default risk," said Pant.

Bhave said regulatory changes like GST and RERA have brought much-needed transparency in the real estate sector leading to better investment opportunities.

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