The Indian wealth management industry is preparing to take advantage of the new opportunities presented by the new India with an increase in the number of high net worth individuals (HNI) and strong economic growth expected. The industry is witnessing a massive shift in client demographics with an increased share of the younger generation, people from tier 2 and 3 cities, and wealthy people from rural areas who are rapidly shifting towards professional wealth management services.
As is the case with almost every other industry where technology has improved by leaps and bounds, it will play a pivotal role in the next stage of growth for the wealth management industry in India.
The industry is seeing the emergence of exciting new trends as it embraces new technologies. Thanks to the plethora of new digital apps, investors these days have access to a huge basket of products to choose from. This was not the case before, when non-traditional products and wealth management tools were the preserve of a handful of HNIs.
The Internet revolution in the country has played a major role in the changing trends seen in the industry. The share of contribution to assets under management (AUM) from rural areas and Tier 2/3 cities, small business owners, women, and millennials is rising rapidly, compared to the previous trend of metropolitan areas are the largest contributors.
People are moving more and more towards financial assets. With the rise in financial awareness, decision-making has been shifting towards mathematical, risk-based, and return-focused from the earlier feature of emotion-based decision-making. This has fueled the customer’s inclination towards financial assets.
However, traditional products remain the bread and butter of the industry despite the fact that the availability of exotic products is increasing.
India’s strong fundamentals and rising per capita income present a great opportunity for the growth of the wealth management industry in the near future.
The new generation of fintechs can play an important role in providing advanced wealth management tools to RMs and clients. Traditional banks can link up with these fintechs to offer the right technology to their existing large customer base and make the most of it.
At the same time, training and upskilling of resources will be the key to capturing incremental market share.
Although people will be eager to erase the memories of the pandemic, it also had its own positives. It accelerated the development and adoption of technology in a few years as wealth managers had to quickly adopt a digital approach as personal commitments became impossible/difficult during the pandemic.
“Customer expectations have increased with respect to response time and access to real-time information,” the report adds. Technology has enabled wealth managers to fulfill this requirement through bots and clients can now access all information about their portfolio through multiple digital channels, which was not the case before.
ICICI Securities (ISec) and IIFL Wealth Management (IIFL Wealth) are two of the strongest publicly traded players in the Indian Wealth Management space. They have asset bases of Rs 2.7 trillion and Rs 2 trillion, respectively. They are direct plays in this growth story.
“We expect strong AUM growth for ISec, given its strong focus on cross-selling opportunities among existing customers, adoption of an open architecture to gain customers, and implementation of technology and digital strategies to enhance its offerings,” said Mr. report. “The stock trades at a FY24 P/E of 13.9x and we maintain our ‘Buy’ rating given our overall confidence in the growth of retail equity investment in India.”
IIFL Wealth, on the other hand, is targeting clients with net worth above Rs 25 crore. It plans to enter the segment of the massively rich (with a net worth of Rs 5-25 crore) and launch customized products for the segment during the next year.
“For this segment, the approach is likely to be different, with increased use of digital and technology capabilities, both from a customer and RM usage perspective,” the analysts added. “The stock trades at a FY24 P/E of 19.4x and with a RoE of over 20 percent and a dividend payout of over 70 percent likely to hold, we find valuations attractive and maintain our rating of ‘To buy'”.