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Riding the next wave of growth

Riding the next wave of growth
The Indian economic scenario witnessed the general elections being the most influential factor affecting the Indian stock markets in 2013-2014 and the expectations of a business-friendly government coming to power in the Centre boosted investor confidence, which resulted in the Indian stock indices outperforming its Asian and Western counterparts, according to the KARVY India Wealth Report 2014. While the economy is still recovering from the slowdown, the $1.8 trillion Indian economy suffered its worst slowdown till FY14 in over a decade with growth below five per cent for four straight quarters, amid threats of a ratings downgrade. It grew by 4.8, 4.4, 4.8 and 4.7 per cent during the four quarters of FY14 (average of 4.6), slowest since 2002. Persistent inflation and low investments due to policy inaction coupled with external factors like the speculation of quantitative easing, or roll back of stimulus, by the US Federal reserve dampened growth and created macro-economic upheavals.

However, the first six months of the new government have been very eventful with lots of new initiatives being undertaken to revive the India economy. Several new policy measures like Make in India, Swachh Bharat Abhiyan, free pricing of auto fuels etc are expected to go a long way in making India more competitive and productive. India’s vicious economic cycle between 2010-2013 of slowing growth, elevated twin deficits and a skewed savings profile is coming to an end, while the positive sentiment prevalent is expected to translate down into acceleration of GDP growth and improved profitability for corporate India in the next few years.

‘We are fortunate to be living in adventurous times,’ Sunil Mishra, CEO, Karvy Private Wealth said while noting that 2014 witnessed several key events that included Modi coming to power, China commodity cycle slowing with a positive impact on India, crude oil prices dropping and advent of e-commerce. CPI inflation, which was a big concern for the RBI, is finally coming down (5.52 per cent in October 2014) which might help the RBI in decreasing interest rates, thus giving a much-needed stimulus to the economy. Another worrying factor for the economy in the past – IIP is also showing signs of revival (+34 per cent in May 2014) indicating that the manufacturing sector is on the path of revival.

India’s Current Account deficit (CAD) for the quarter ended in March 2014 and fell sharply to 0.2 per cent of GDP ($1.2 billion) from 3.6 per cent ($18.1 billion) a year earlier, as the fall in imports were steeper than the drop in exports. However, in FY15, with crude prices and prices of most commodities coming down globally, the CAD is expected to be negligible. Agriculture showed a growth of 4.7 per cent in 2014, the best growth since 2010-2011 and is the biggest contributor to India’s economic growth. Last year, it grew by 1.9 per cent. The Indian economy seems to have bottomed out in FY14 and is expected to be on the growth path from now on, besides the GDP growth rate expected to reach 7.55 in the next four to five years.

The Total Indian Individual Wealth in Financial Assets stands at Rs 134.71 lakh crore as in FY14, whereas Indian Individual Wealth in Physical Assets (Real Estate and Precious Metals like Gold, Diamond, Silver and Platinum) stands at Rs 122.7 lakh crore. Hence the total Indian individual wealth held in FY14 is estimated to be at Rs 257.41 lakh crore. Financial wealth contributes about 52.33 per cent and physical wealth contributes about 47.67 per cent to the total Indian individual wealth.

Due to the slowing down of the economy in the last few years during the tenure of the older government, the household savings rate was greatly skewed towards physical assets such as Real Estate and Gold. The rate of physical to financial assets had reached an all time low of 69 per cent to 31 per cent in 2011-2012. With the turnaround coming about in the economy, this is expected to return to 50:50 in the next five years.

The following financial assets have been considered to arrive at individual wealth: fixed deposits and bonds, direct equity, insurance, saving deposits, cash, provident fund, NRI deposits, small savings, mutual funds, current deposits, pension funds, alternative assets and international financial assets.
Bank fixed deposits have traditionally been one of the most popular investment tools used by a vast section of society across all economic zones. The total deposits with all schedule banks stood at Rs 79.53 lakh crore, amounting to an increase of 14.58 per cent over the last year.

The aggregate deposits with schedule commercial banks also increased to 14.65 per cent over 2013 and stood at total value of Rs 77.39 lakh crore. The increase in deposits is mainly due to a rising trend observed in the term deposits when the economy was not doing very well, considering the Bank FDs are comparatively very safe instruments. The household sector is the largest contributor to these deposits as compared to public and private sectors. Individual Wealth held in Bank FDs stands at Rs 27.91 lakh crore in FY14 and has grown by 17.14 per cent as compared to FY13.

The Individual Wealth in Corporate Fixed Deposits in FY14 is about Rs 67,676 crore – a decline of 28.2 per cent as compared to FY13. This sharp decline is due to the fact that many unrated companies, mostly manufacturing and real estate companies stopped accepting or renewing deposits after April 2013, after the provision of the New Companies Act came into force.The Total Asset Under Management of Bonds and Debentures as of 31 March 2014 stands at Rs 1,08,439 crore. Out of this, individual participation amounts to Rs 67,938 crore – an increase of 66.41 per cent over FY13.
PSU Bonds: Rs 89,063 crore as of 31 March 2014. These PSU bonds include taxable and tax-free bonds. The estimated individual wealth in these bonds is Rs 54,300 crore.

Corporate Bonds:
Total assets under management stand at Rs 19,375 crore. The estimated individual wealth in these non-convertible debentures is Rs 13,637 crore.

Direct Equity:
India was the only one among the BRIC nations to have a positive change in the stock indices. It buckled the global trend of declining stock markets. The single biggest factor impacting the stock markets this fiscal was the Indian general elections 2014. Nifty rose from 5,697 on 1 April 2013 and rallied to 6,723 on 31 March 2014 which translated into a market capitalisation increase of 16 per cent (Rs 72.7 lakh crore from 62.3 lakh crore). The Bull market started with the NDA announcing Narendra Modi as their PM candidate on 13 September 2013 who is seen as a right wing person.

The Bull run has continued and the market capitalisation has touched 100 lakh crore recently. Many new initiatives like Make in India, development of 100 smart cities, opening of FDI in several sectors, free pricing of auto fuels, Swachh Bharat Abhiyan has been launched by the new government. Hence more and more domestic and international investors are getting convinced about the India story. Looking at the current macro trends, cooling commodity prices, governance reforms and revival in growth, the Sensex is expected to reach 1,00,000 by 2020. Individual wealth in FY14 equity increased by 9.7 per cent, which is six percentage points less than the 16 per cent increase in market capitalisation, indicating that despite the Bull Run, individual investors were slow to the party and FIIs enjoyed the bulk of the benefits. Individual wealth of resident Indians stood at Rs 26.21 lakh crores. An NRI can invest in India’ stock market under Portfolio Investment scheme (PIS) which is regulated by the RBI and the wealth held by NRIs in Indian stock market stands at Rs 45,129 crore. The total individual wealth in equity investments stands at Rs 26.6 lakh crore.

Insurance:
With 36 crore policies, India’s life insurance industry is the largest in the world. Despite this, India continues to be uninsured. Life insurance penetration in the country, the ratio of premium underwritten in a year to the Gross Domestic Product (GDP), was just around 3.17 per cent and is forecast to grow at a Compounded Annual Growth Rate (CAGR) of 12-15 per cent over the next five years. Assets Under Management (AUM) of life insurers will almost treble to $1 trillion (nearly Rs 60 lakh crore by 202 from the current Rs 22.02 lakh crore, according to projections by the Life Insurance Council. Total Individual Wealth in Insurance stands at Rs 22.12 lakh crore.

Employees Deposit-Linked Insurance Fund:
The total wealth stands at Rs 12,684 crore.

Savings Deposits: Individual wealth stands at Rs 16.28 lakh crore as on 31 March 2014 – marking a growth of 7.96 per cent over FY13. (The share of savings deposits declined from 26.4 per cent in 2006 to 23.7 per cent, increased somewhat to 25.5 per cent in 2010 after which it has more or less remained constant.)

Current Bank Deposits: Individual wealth stands at Rs 3.08 lakh crore and there is an increase of 3.42 per cent in this as compared to FY13.

Cash: As on 31 March 2014, Rs 13 lakh crore worth of cash is in the hands of the public. The persistent inflation since the 2011-2012 has resulted in the RBI taking liquidity control measures and infusing less cash in the system which explains the declining rate of currency increase.

Employees Provident Fund: In this fiscal saw a rise of nine per cent in the EPF which now stands at Rs 4.74 lakh crore.

Provident Funds: Individual wealth stands at Rs 8.36 lakh crore with 40.39 per cent YOY growth. A major contributor to this increase is the 50.67 per cent increase in Bank PPF Deposits.

NRI Deposits:
The outstanding amount in the NRI deposits as on 31 March 2014 is Rs 6,22,337 crore. The NRI deposit has increased by 61.89 per cent, as compared to FY13. To attract NRI remittances, the RBI had provided additional incentives to NRIs to invest in India under the FCNR deposit scheme by raising interest rates from the period of September 2013 to November 2013.

Small Savings:
Fiscal 2012-2013 saw small savings category decline by one per cent. As a result of the declining savings rate, 2012-2013 witnessed a savings rate of 30.1 per cent of GDP in a fourth consecutive fall from the high of 38.1 per cent in 2007-2008. In 2014, small savings posted a $2.44 growth. Rural India accounts for 56 per cent of the country’s total income and 33 per cent of India’s savings. Contribution of Agriculture to GDP has increased from two per cent in 2013 to five per cent in 2014. The individual wealth in Small Savings stands at Rs 5.78 lakh crore.

Mutual funds:
The penetration of the Mutual Fund Industry remains low with corporate dominating the assets under management with 49 per cent share in March 2014 and HNIs were the second biggest contributors of AUM with 29 per cent share followed by retail investors with 19 per cent. The huge win of NDA in general elections saw increased confidence in the Indian Industry being reflected in huge sales of Equity-based Mutual Funds in Mat 2014 and this trend is expected to continue with retail investors investing more in equity-based mutual funds. The total Individual Wealth in Mutual Funds stood at Rs 3.93 lakh crore up from Rs 3.49 lakh crore in FY13.

Real Estate:
India’s Real Estate has got an optimistic push from the Modi government whose announcement on housing sector in 2014 budget has encouraged both buyers and developers. Total wealth stands at Rs 50.38 lakh crore.Optimism is back in the Indian economy with economic indicators showing the worst is over.

Gold: Over the centuries, Indian households have piled up over 20,963 tonnes of gold till March 2014 worth Rs 62.5 lakh crore. Around 800-900 tonnes are added to this every year, coupled with the large quantity of gold in temples in India. The World Gold Council states gold in Indian temples is around 2,240 tonnes, while the US Bullion depository Fort Knox says that as of 2013, present gold holdings by the temples are about 4,603 tonnes. The total value of wealth in individual gold stands at
Rs 62.5 lakh crore, up three per cent from FY13.

Diamond: No place on earth has a longer or closer association with diamonds than India, which is said to be home of the first diamond mines, and the first written mention of commerce in diamonds appeared in Sanskrit about 3,000 years ago. India’s Golconda produced some of the world’s most famous diamonds including the legendary Kohinoor crystal and the Hope diamond. As recently as the 19th century, India was the principal source of diamonds, prior to the discovery of diamonds in Brazil and South Africa.

Today, all but one diamond mine has been depleted, but the country remains the center of the cutting and polishing crafts where approximately 90 per cent of the world’s rough diamonds – representing more than 50 per cent of their total value – are polished in India. Statistics of the GJEPC show that India’s polished diamond export increased by 25.47 per cent at Rs 1,18,870 crore in 2013-2014, compared to previous year. Much more recent is India’s emergence as the world’s third largest market for diamond jewelry, after the United States and China. India surpassed Japan, the European Union and the Gulf region with annual retail sales of diamond amounting to $8.5 billion or 12 per cent of the global demand in 2011.

Buoyed by the surging demand for all kinds of jewelry up 19 per cent annually since 2005, diamonds share of the Indian jewelry market has grown from 24 per cent in 2005 to 27 per cent in 2011. In 2012, the country recorded retail diamond sale of $9.1 billion up by two per cent, as compared to 2011, while the world diamond retail sales was about $72.1 billion. The individual wealth in diamonds is estimated at Rs 7.8 lakh crore.

Silver: Demand for silver in India comprises jewelry and silverware, coins, medals and industrial silver used in electronics, alloys, photography and others. India hardly produces any silver – Rajasthan, Gujarat and Jharkand are the three major silver-producing states – and is one of the largest importers in the world. Silver is considered as a hedge against inflation and investment function, where it is purchased by small families as jewelry, while more wealthy farmers prefer bars – generally 15-30 kgs in size.

Farmers reportedly bury the silver bars in their fields along with the crops. After a bad, monsoon or if ther is a crop failure, the silver becomes the harvest. Demand for silver increased in India by 122 per cent as Indians flocked to it due to Indian restrictions in gold trade, total household wealth that is channelised into silver is Rs 1.9 lakh crore.

Platinum: Jewelry is on the rise in India and is eating into the traditional gold segment mainly because of changing consumer preferences. Indian men from upper middle class in age group 25-40 years are embracing platinum so much that men’s jewelry today contributes to nearly 53 per cent of the overall share of platinum jewelry sales.

The Indian jewelry market witnessed a staggering growth of 415 in platinum jewelry segment in 2013-2014 and price between gold and platinum has narrowed from 100 per cent to 10-25 per cent now. Total individual wealth in platinum stands at Rs 5,678 crore up 63 per cent from Rs 3,466 crore in FY13.

Dominick Rodrigues

Dominick Rodrigues

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