Pursuing safe bets has always driven India towards investing in physical assets like gold and real estate. However, this pattern is slowly changing over time. Also, the country has seen a significant shift in attitude from capital preservation to wealth creation, says Rakesh Rawal, CEO, Anand Rathi Wealth Ltd.
In an exclusive interview with Sanjeev Sinha, Mr Rawal decodes the wealth management market in India and shares his business outlook. Excerpts:
Could you decode the wealth management market in India and give a current overview of the market? What are the trends and opportunities to watch out for in 2023?
Historically, Indian households have been quite risk-averse and wary of investing their savings into volatile or uncertain return-based assets. Pursuing safe bets has always driven India towards investing in physical assets like gold and real estate.
However, this pattern is slowly changing over time. Also, the country has seen a significant shift in attitude from capital preservation to wealth creation. Robust economic expansion and substantial growth in per-capita income will drive the pace of wealth creation in India, where investment towards financial savings is gradually increasing with an increase in GDP.
India enjoys one of the world’s fastest-growing HNI populations both in terms of the number of individuals and wealth levels. But, the percentage of wealthy Indians remains very small compared with developed economies. The number of HNIs (U.S. $ 1 million+) is expected to almost double at a CAGR of 12% from 7.97 lakh in 2021 to 14.07 lakh in 2025. Most of the increase will be driven by young Indians getting wealthier.
HNIs in India are increasingly inclined towards equity and equity-linked instruments. They are keen on reducing exposure to real estate and gold and even looking at reducing debt allocation in pursuit of higher returns that comfortably beat inflation.
Given the favourable macroeconomic climate and the rise of local millionaires and billionaires, we believe there is a significant untapped market for the wealth management sector.
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How is the investor response and sentiment towards the existing volatile market conditions?
Despite short-term volatility, the mid and long-term outlook for the Indian equity market seems highly promising. We offer wealth solutions to our clients from a long-term perspective, which has worked well in the past to achieve clients’ objectives during volatile market scenarios. We are confident that our strategies will continue to help our clients achieve their objectives. Our net new money for 9MFY23 stood at Rs 3,715 crore, a growth of 94%, and the same in Q3FY23 stood at Rs 1,241 crore, a growth of 74%. This speaks of the value which we add to our clients. Also, we have added (net) 1,120 clients in 9MFY23 as compared to 801 addition during the same period last year.
How do you see the growth of alternative asset class taking place in 2023?
Mutual funds are better investment options than alternatives. We have a strong in-house product & research team of more than 80 people. We have researched all the products available in the market, including AIFs. We conclude that our clients do not need these. We recommend only mutual funds (MFs) for long-only positions to our clients because the standard deviations are low enough. Mutual funds have generated 12-17% (CAGR), dramatically reducing the need for innovation. You must measure all instruments on efficiency, which is return upon risk.
How do you see the traction in the National and International market for equity funds?
Indian equities have been one of the best-performing asset classes globally, supported by strong economic growth, good quality corporate earnings, and increasing investment in the Indian equity market both from foreign and domestic sources. Despite possibilities of near-term volatility, the outlook for the Indian equity market for the mid term and long term looks very attractive. Although continued outflow of foreign portfolio flows from the secondary equity market, greater allocation of domestic households into equity assets has enabled the domestic institutions, especially the mutual funds, to largely compensate for the FII outflow, leading to resilience in the Indian equity market.
How has your company performed in recent months and what are your future growth plans?
We have delivered strong performance across the vectors. For 9MFY23, our consolidated revenue grew by 32% YoY to Rs 412 crore, PAT by 37% Rs 126 crore and AUM grew by 20% at Rs 38,517 crore. For the first nine months of the current financial year, net client additions increased 40% to 1,120 from 801 during the same period last year. We have made an upward revision in our full-year FY23 guidance. Revised revenue guidance is Rs 525 crore, and PAT guidance of Rs 165 crore for FY23. We have always been conservative while giving guidance and overachieving it in actuals.
The four engines of growth that will lead our way forward are in place – 1) Market returns on AUM. 2) Penetration in the existing 8,000+ clients’ families. There is massive scope for increasing our wallet share. 3) Addition of new clients by existing relationship managers (RMs) 4) Addition of new relationship managers who will add new clients.
All in all, with these four engines, to get a 20-25% growth in business is very reasonable.