Show me the money

Direct Equity is now the most preferred financial asset class among Indian individuals, while real estate and gold have lost their charm as physical assets through their de-growth during 2015. The total wealth held by individuals in India has grown by 8.9 per cent to Rs 280 lakh crore and individual wealth in financial assets grew by 19 per cent, while physical assets de-grew by 2.3 per cent, according to the Karvy India Wealth Report 2015 that was released recently. The individual wealth in Financial Assets has increased from Rs 134.7 lakh crore in FY14 to Rs 160.5 lakh crore, which is a growth of 19 per cent and KARVY Private Wealth forecasts that this will double to Rs 326 lakh crore in the next five years. 

The individual wealth in Physical Assets actually decreased by 2.3 per cent to Rs 19 lakh crores due to degrowth in gold, silver and platinum and a slowdown in the real estate market. FY15 has seen an important trend reversal in the fresh investments of household savings, getting invested more in financial assets (54 per cent) than physical assets (46 per cent). For FY14 the trend was completely opposite with physical assets accounting for 65 per cent of fresh investments. Gold and real estate together form approximately 92 per cent of the physical wealth in India. KARVY Private Wealth forecasts that alternate assets and mutual funds will grow the most over the next five years with a faster rate of growth of about 44 per cent and 29 per cent per annum respectively.

Abhijit Bhave, CEO, Karvy Private Wealth – the Wealth management arm of the KARVY Group, a leading financial-services conglomerate – noted: “Our 2014 prediction that Direct Equity would become the single largest asset class contributing to individual wealth in India in the year ending March 2015 came true. World wealth is growing but Indian wealth is accelerating at a much faster pace. The overall HNI wealth in India has grown by 28 per cent as against a global HNI wealth growth of barely 12 per cent last year. This year, our projection is that the individual wealth in financial assets will double over the next five years and mutual funds & alternative investments will top the table in terms of growth rates.” The India Wealth Report, which is based on extensive research and provides a comprehensive perspective of Wealth held by individuals in India, presented an 

in-depth analysis of the avenues of investments as well as the expected pattern of future investments.  

“The Golden Age is over and we conclude that gold will not go up till the next crisis happens,” Bhave said while pointing out that for the first time ever, investors were putting money into financial assets (real estate and gold) rather than physical assets (up from 35 per cent in 2014), and that financial assets are set to double in next five years to 15.20 per cent CAGR, (besides diamonds at 20.6 per cent) to have the fastest growth rate alongside the Indian growth story continuing over the next five years. “We have witnessed very much financial reversal (for the first time) since the Karvy report (this is the sixth edition) started, and gold and real estate represented 92 per cent of the physical wealth in India.”

Replying to questions, he said the prices of Indian properties will be similar to global properties in the next 10 years.  One reason why financial wealth will rise faster than physical wealth is because the returns are higher and more liquidity, he said while describing real estate as the most complicated section of the wealth report due to cost of property in rural and areas being different from each other.

“Where gold is concerned, despite India manufacturing a limited amount of gold, the physical amount of gold was up but prices had gone down and – based on this report – the best advice is: 1) for retired persons: gold is “crisis” currency, but always have some equity, some debt. Our view is equity positive. International and domestic gold prices will be more or less similar in next five years as India imports gold and follows the global patterns. Globally, not many buy or wear gold and India has always been the largest gold importer in the world. All countries mainly have their wealth in gold deposits, while India imports gold for jewellery.”

“The Karvy Report indicates that as of March 2015, the overall wealth share of real estate has remained flat, while that of gold, silver and platinum has actually gone down. Among the financial assets, while direct equity and fixed deposits are the two top investment vehicles, mutual funds have seen the maximum incremental growth of allocation of new money.”

Meanwhile, the Global HNI wealth grew by nearly 12 per cent in 2014 to reach a total of USD164 trillion, out of which Asia accounted for USD47 trillion. India emerged as the key driver in FY15 with its HNI wealth increasing by 28 per cent on the back of a robust GDP growth rate of 7.3 per cent. India has been considered as the ‘Next Big Emerging Economy’ with its GDP expected to outpace that of China for the next decade, due to the changing positive dynamics within India. One of the Key positive changes in FY15 has been the trend reversal of fresh investments of household savings getting channelised more in financial assets (54 per cent) vis-a-vis physical assets (46 per cent). For the FY14, the trend was completely opposite with physical assets accounting for 65 per cent of fresh investments.

 The total wealth held by individuals in India has grown by 8.9 per cent to Rs 280 lakh crores. Individual Wealth in Financial Assets grew by 19 per cent while that in Physical Assets de-grew by 2.3 per cent. The individual wealth in Financial Assets has increased from Rs 134.7 lakh crore in FY14 to Rs 160.5 lakh crore and is expected to double to Rs 326 lakh crore in the next five years. The Physical Assets are expected to grow at a slower rate of 4.4 per cenCAGR for the next 5 year.  Direct Equity has been the flavor of FY15, becoming the largest asset class of investments with a YoY growth of 29 per cent (Rs 34,39,861 crore) overtaking fixed deposits and bonds. The upward trend in direct equity is forecasted to continue with a growth of 20 per cent CAGR over the next 5 years. 

 Fixed deposit and bonds managed to be the second largest investment choice with a YoY growth of 13.10 per cent (Rs 33,26,429 crore) and insurance retained the 3rd position with a YoY growth of 16.85 per cent (Rs 23,59,790 crore).

Physical assets saw subdued interest with the wealth held by individuals in physical assets reducing marginally in FY15, on account of reduction in prices of gold and precious metals and gems and also subdued activity in the real estate sector. The physical assets are expected to grow at a slower rate of 4.4 per cent CAGR for the next five years to reach a level of Rs 148 lakh crores. In assets like debt and real estate, individual wealth in India is in line with the global proportions. However, with faster growth in equities and slower growth in gold, the coming decade is likely to witness a trend reversal between equity and alternate assets – leading to India broadly being in line with the global proportions in all asset classes. 

Asia Pacific (excluding Japan) continues to be the undefeated growth champion with private wealth growing by a steep 29 per cent from last 2014. Global private financial wealth grew by nearly 12 per cent in 2014 to reach total $164 trillion – out of which Asia accounted for $47 trillion. India emerged as the key driver in FY15 with its HNI wealth increasing by 28 per cent on the back of robust GDP growth rate of 7.3 per cent.

India has been considered as the next big emerging economy with its GDP outpacing China for next decade due to the changing positive dynamics within the country. One of the key positive changes in FY15 was trend reversal of new fresh investments of household savings getting invested more in financial assets (54 per cent) than physical assets (46 per cent). For FY14, the trend was completely opposite with physical assets accounting for 65 per cent of fresh investments. Wealth in India is rising at an increasing pace and, while physical assets like gold and real estate were traditional modes of investments for Indian individuals, people see value in investing their hard-earned money in more liquid and return-oriented assets.

In Assets like debt and real estate, individual wealth in India is in line with global proportions. However, with faster growth in equities and slower growth in gold, the coming decade is likely to witness a trend reversal between equity and alternate assets, leading to India broadly being inline with the global proportions in all asset classes.