Total wealth held by individuals in India has grown 8.5% to Rs 304-lakh crore in FY16, according to Karvy’s India Wealth Report 2016. It expects the individual wealth in India to grow to Rs 558-lakh crore at a compounded annual growth rate (CAGR) of 12.9% over the next five years.
Total individual wealth in financial assets in India grew 7.14% to Rs 172-lakh crore in FY16, the report says, much slower than in FY15 when wealth had grown nearly 19%. The slower pace of growth has been attributed to the bleak performance of direct equities. Karvy expects financial assets to grow at a faster pace of 14.73% CAGR, nearly doubling in the next five years.
Growth in alternate asset classes in FY16 stood at 84.70% vis-à-vis FY15. Karvy predicts the growth to continue in the next five years although at a slightly slower pace. At the same time, Karvy also cautions against more ‘Black Swan’ events like demonetisation in the future, which will change the way Indians perceive wealth.
Going ahead, Karvy expects more wealth to enter the formal financial system given the government’s demonetisation programme. As a result, savings bank deposits, fixed deposits and small savings schemes to be most sought after investment avenues even for the next year.
Over the long-run, Karvy says, this wealth will eventually find its way into asset classes such as equities, mutual funds, etc. On the other hand, the proportion of investments in physical assets such as gold and real estate will reduce.
"Wealth in financial assets (direct equities, fixed deposits, alternate assets and mutual funds) is likely to grow considerably in the long run, and events such as demonetisation will also help reroute Indian investors’ wealth into these financial assets. Growth in direct equity at a CAGR of 24.27% over the next five years is likely to lead this growth in financial wealth, followed mutual funds (20.23%), insurance (15.6%), fixed deposits (13.31%) and savings deposits (12.89%)," said Abhijit Bhave, CEO, Karvy Private Wealth.
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Asset–wise trends
Individual wealth in physical assets, according to Karvy, stood at Rs 132-lakh crore, having grown at a brisk pace of 10.32% in FY16 compared to a 2% decline in FY15. Indian's love for gold was evident and shone all through FY16, with individual the wealth in the yellow metal at Rs 65.90-lakh crore, which is nearly half the share of physical assets.
On the other hand, wealth in real estate (excluding primary residences) come in second at Rs 55.47-lakh crore, the Karvy report suggests. Wealth held in Mutual Funds grew 13% during the period under review, indicating a clear preference of investors moving towards professional management of wealth.
Global wealth
Global private financial wealth grew by nearly 5.2% in 2015 to $168 trillion (around Rs 11,250-lakh crore), of which, Asia-Pacific accounted for $37 trillion (nearly Rs 2,500-lakh crore), the report says. While India is considered the bright spot among emerging economies, Karvy expects the growth momentum to slow, given the government’s recent efforts to demonetise old, high-value notes.
That apart, the outcome of the US Presidential election is also likely to impact global markets. However, in the long-run, India is expected to outshine its emerging market peers, including China, owing to changing positive dynamics, especially the government’s reforms push.