For Bengaluru households, it’s real estate over financial investments

As Bengaluru-headquartered, tech-driven investment platforms such as Zerodha and Groww pull in more investors from across India, the city’s share in trading activity, by Kamath’s calculation, should increase. But individual Bengaluru investors, while earning and investing more, haven’t kept up a similar pace, putting most of their savings elsewhere.

Take the city’s share in trades on stock exchanges that result in deliveries of shares, or the ‘cash segment’. On the National Stock Exchange (NSE), which accounted for about 93% of turnover on Indian bourses in the cash segment in 2022-23, Bengaluru’s share has declined for the past seven years. Even as trading volumes on the NSE cash segment have grown 2.6 times between 2016-17 and 2022-23, Bengaluru’s share has dropped from 6.3% to 0.8%.

This period coincides with brisk growth in the technology and startup spaces, which have made Bengaluru a magnet for workers from across the country. One reason the city is not off the charts in investing is that individuals are showing a strong preference for buying houses. Data on outstanding home loans shows that Bengaluru is the third-largest market, within touching distance of older and more established economic centres such as Mumbai and the National Capital Region.

Steady investments

The total value of home loans outstanding for Bengaluru was ₹1.22 trillion, spread across about 430,000 borrowers, as of March 2022. This amounts to about 52% of the ₹2.35 trillion that Bengaluru investors had in total assets under management (AUM) of mutual funds in India in December 2022. By comparison, home loans as a percentage of mutual fund AUMs for Mumbai, where much of India Inc (that channels its surplus into mutual funds) is headquartered, was just 12%.

Bengaluru investors are putting money in mutual funds. Between March 2015 and December 2022, the amount they held in mutual funds increased from about ₹66,000 crore to about ₹2.35 trillion, representing a compounded annual growth rate of about 17%, higher Mumbai's and Delhi's. However, in an expanding mutual fund industry, Bengaluru’s share has remained around 6%. It’s the cities beyond the top 15 that have seen their share increase.

Home equity

Bengaluru, by comparison, is a leader in new residential housing. According to real estate consultancy Jones Lang Lasalle, Bengaluru led all Indian cities in housing sales in the April-June quarter with 13,596 units, amounting to a share of 21%. Mumbai and Pune followed with 20% each. “Increased population, rising interest in home ownership, strong economic growth, changing demographics, and the evolving need for more spacious homes have contributed to an increase in sales in Q2 2023," the consultancy said about Bengaluru in its residential-market update for the quarter.

The average home loan outstanding per borrower has been increasing in all cities. In Bengaluru, it rose from ₹22.6 lakh in March 2018 to ₹28.3 lakh in March 2022. This was second only to Mumbai ( ₹33.4 lakh), the most expensive property market in India.

Deposit growth

There is a distinct cycle of wealth creation underway in Bengaluru, propelled by new jobs, more migration, and higher incomes. This is something that all Indian cities and states aspire for, but not all are able to attain.

One expression of greater economic activity is deposits held in Indian banks. Data for the past decade from the banking regulator shows that, of the top seven Indian metros, only two have averaged double-digit growth in bank deposits. One is Pune and the other is Bengaluru, though Pune's base is about 40% that of Bengaluru. Meanwhile, on the back of faster growth, Bengaluru is closing the gap to Delhi and Mumbai. It may not yet provide Bengaluru an economic rationale for a stock exchange, but as home loans mature, a greater presence in financial assets should follow.

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