On A Growth Path
The private wealth sector has grown considerably as global wealth has increased and as individuals have taken on more of the responsibility for managing their own financial resources. Private wealth management (PWM) involves the management of assets of high net worth individuals (HNI), UHNIs and even family offices. The wealth management industry is increasingly getting digitalised; PWM is an area where a presence of high-touch/relationship manager is required and highly valued. We can measure the rise in private wealth business by measuring the sheer pace at which the wealth of the country’s rich and its management is increasing by the rise of assets in UHNI and HNI investment vehicles, rise in the number of wealthy individuals and the rise of unicorns.
For investment vehicles, let’s consider alternative investment funds or AIF and portfolio management services or PMS where currently the minimum investment is Rs 1 crore and Rs 50 lakh, respectively. In a decade, AIF Category 2 went from receiving ~Rs 1,000 crore commitments in March 2013 to nearly Rs 7 lakh crore commitments in March 2023. In a decade, AIF Category 3 went from receiving ~Rs 90 crore commitments in March 2013 to touching nearly Rs 80,900 crore commitments in March 2023.
Hence, excluding Category 1 AIF where even smaller ticket sizes are allowed, the AIF category has seen an exponential rise in commitments received, from Rs 1,077 crore in March 2013 to crossing Rs 7.7 lakh crore in March 2023, an annualised growth of 93 per cent per year. Same way, if we consider ex-EPFO AUM of the PMS industry, it has grown from ~Rs 1.4 lakh crore in December 2010 to Rs 7.2 lakh crore in December 2022, i.e., grew at ~Rs 60,000 lakh crore per year or 15 per cent CAGR. The number of PMS clients too grew from 67,417 to almost 1,40,000 for the same period, i.e adding 6,000 clients on an average per year who can invest in a high-ticket size vehicle like PMS.
Rise Of UHNIs & Taxpayers
Officially, the number of individuals earning more than Rs 1 crore were 84,817 in FY18, which rose to 1,69,890 in FY23 as per ITR data released by CBDT. If we assume the same momentum of 15 per cent CAGR to continue over the next five years, we would see almost 3,40,293 taxpayers earning more than Rs 1 crore by FY28. As per a Knight Frank report, India’s HNI population grew to 7,97,714 in 2022 from 7,63,674 in 2021, an addition of 34,000 HNIs in just 1 year. Knight Frank estimates this to further double and number of HNIs will rise to 16,57,272 by 2027. Knight Frank defined HNIs as individuals with an asset value of $1 million and more.
Rise Of Unicorns
The last few additions in UHNIs and HNIs in India can be attributed to rise of unicorns, especially in 2021 and 2022. Unicorn is used for a privately held startup company which is valued over $1 billion.
As per investIndia.gov.in, till FY 2016-17, ~ 1 unicorn was being added every year. Over four years (FY18 to FY22), this number has been increasing exponentially, with a whopping 66 per cent YoY growth in the number of additional unicorns being added every year. As of 31st May 2023, India has 108 unicorns with a total valuation of ~$340 billion. Out of the total 108 unicorns, 44 unicorns were born in 2021 with a valuation of $93 billion and 21 unicorns were born in 2022 with a valuation of $27 billion.
The private wealth management industry is evolving and will only grow from hereon. Wealth share of top 1 per cent in India increased from 33.2 per cent in 2000 to 41 per cent in 2010 and has remained around 40 per cent ever since, as per Credit Suisse’s Global Wealth Report 2023. However, the number of individuals settling outside India is an emerging concern. According to Henley Private Wealth Migration Report 2023, approximately 6,500 HNIs are estimated to leave India in 2023.
Otherwise, the Indian private wealth management market is on a sustained path of growth, driven by India’s long-term economic prospects, rising wealth of the wealthy and the number of wealthy individuals itself. What maybe be required is high quality banking talent in the country to match the kind of growth we see in HNIs, UHNIs and their wealth.
About the Author: The author is the chief executive officer at Prabhudas Lilladher, a leading financial services firm
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