With BlackRock aiming to crack India’s asset management industry following its tie-up with Jio Financial Services, market observers FSA spoke with reckon that the opportunities in the republic are manifold, largely due to favourable secular trends.
While China may have garnered a lot of attention lately from foreign asset managers as its securities regulator has begun giving the green light to more foreign firms to set up wholly owned mutual fund businesses, India arguably represents an even bigger opportunity.
For example, the republic’s population is estimated to reach 1.429 billion this year and 1.5 billion by 2100, a significant leap ahead of the 800 million projected for China by 2100.
“Normally when global investors in particular look at the two giants in Asia, they see China or India as binary or complementary,” Alessia Berardi, head of emerging macro strategy at the Amundi Institute, told FSA.
“On one side you have China with very cheap valuations and on the other side India with expensive valuations. But if you look at the growth prospects, the economic momentum, clearly India is benefiting from these kind of drivers. That is what China now doesn’t have.”
Data from the Boston Consulting Group show that that India’s wealth management industry is expected to grow at 10% per year to reach $5.5trn by 2025 from $3.4trn in 2020. Meanwhile, the country’s mutual funds industry has also been growing at breakneck speed, with its assets under management increasing fivefold over a span of 10 years.
Rajesh Mahadevan, head of global south Asia at Deutsche Bank International Private Bank, attributes this growth to a few key factors, the first being macroeconomic conditions and growth-oriented policies.
“With the strong undercurrent of growth, there has been a sizeable increase in both corporate profitability and individual wealth, creating a strong tailwind in the number of ultra-high-net-worth and high-net-worth individuals,” he said, explaining that the republic is expected to have over 195 billionaires by 2027, according to a report by Knight Frank.
“Decision makers among India’s wealthy are getting younger either due to generational wealth transfer or due to new age wealth generated from modern day industries such as information technology. This has not only led to an increase in investment risk appetite but also has brought a lot more balance in asset allocation between gold, real estate and capital market investments,” he said.
Meanwhile, Andrew Holland, CEO of Avendus Capital Public Markets Alternate Strategies, attributes the recent growth in the south Asian country’s asset management sector to “a younger population who are more willing to save and use SIPs (systematic investment plans)”.
SIPs are a type of investment tool that allow investors to invest a fixed amount at regular intervals in a mutual fund scheme, meaning that they do not need to have a large amount of money to invest to begin with.
Additionally, it ensures that investors do not need to time the markets when investing through an SIP as they benefit from both bullish and bearish market trends; when the markets are down, investors purchase more fund units, while they purchase fewer units when the markets are surging.
Meanwhile, Vineet Sukumar, CEO of Vivitri Capital, notes that while India’s fixed income asset management industry may have grown over the past decade, this has been at a much slower rate than for equities.
He attributes this to the fact that fixed income mutual fund portfolios typically only include large AA and AAA rated corporates from 150 to 200 companies. These companies pale into comparison to the 15,000 plus mid-market companies that can provide good investments, but are not considered, he said.
Notwithstanding this fact, the opportunities in India’s asset management industry are manifold.
“Anecdotally, industry experts expect AUMs for the mutual fund industry to double by 2030 to $1trn. Equally, the industry’s mettle will be tested with tighter regulations and growing need for sophisticated solutions for ultra-high-net-worth clients and professionally run family offices. This would warrant innovative solutions across both the public and private market space,” said Rajesh.