India on brink of quantum leap in wealth generation: Anirudha Taparia, IIFL Wealth Management

One in five holds more than half of their wealth in investment funds.

On the upcoming budget on February 1, Taparia expects an increase in the standard deduction limit for taxpayers along with an increase in the limit for investments under 80C. He also envisages some sops for affordable housing segment and a couple of measures to reduce the burden faced by farmers.

At IIFL Taparia, is responsible for the wealth advisory practice across business verticals and geographies.

Excerpts from the interview:

Q) You manage the wealth of many HNIs in India. What trends are you seeing in their investment approach?

To begin with, India's high net worth (HNW) population growth of 40 percent over the past five years has eclipsed that of its rivals in economies elsewhere in the world, placing India in a league of its own. India is on the brink of a quantum leap in wealth generation with the number of wealthy Indians and their affluence expected to rise by an astonishing 87 percent over the next five years (according to the IIFL Wealth Index).

India's wealthy population is expected to be the 10th fastest growing in the world in a list dominated by emerging economic powers. The country's economy and wealth generation is being led by a group of HNIs who are driving a decades-long growth story that has been turbo-charged by the present government. India’s wealthy are not afraid of risk, but they are careful to manage it by adopting a diversified and sophisticated strategy for their financial investments.

As they move towards the top of the global wealth league table in the coming years, many will be looking to increase their international investments.

Q) But aren't there enough opportunities to invest in India itself?

Opening our assets to global markets has been a rising trend and finding the right people to help guide us through this, whilst also making the most of opportunities at home, is the clear challenge both to the wealthy and their advisors. While wealthy Indians want to make their mark at home, there is no doubt that their realm of influence will extend globally.

As they move towards the top of the global wealth league table in the coming five years, many will be looking to increase their international investments. The power of the global rupee is already felt in international property, foreign direct investment (FDI) and luxury goods, whether designer clothes, watches, cars or jewellery.

Q) Do you expect a significant change in asset allocation?

The demand to make their money work harder means an asset portfolio shake-up is coming up for HNIs. They reckon the best place to book those returns right now is investment funds, followed by equities and fixed income. Investment funds make up almost one-third of the total assets held by the super wealthy and 84 percent hold at least some of their fortune in these funds. One in five holds more than half of their wealth in investment funds.

These pooled investments tend to be more popular with the HNIs than the top tier of rich Indians; the very high net worth individuals who are more likely to invest in and hold at least half of their wealth in their primary business.

One in five of the ultras holds even more than half of their wealth in their own business, compared with just 4 percent of non-UHNIs. That may be because they are still in the process of building their companies and fortunes and, therefore, need a more diversified investment asset base.

Q) What about real estate?

Another interesting insight from the IIFL Wealth Index is that 28 percent of India’s richest individuals see property as over-represented in their portfolios.

Until now they have viewed property as beneficial on two fronts: diversification and solid returns. But as these wealthy investors seek better returns, equities and direct investment in businesses other than their own appear to offer better opportunities.

Until recently, the property has been the investment of choice, with half of the wealthy putting their money in real estate. Investment properties represent 10 percent of their asset base. However, this might be excessive and need rebalancing.

The wealthy elite are poised to juggle their investment priorities to reduce their focus on property and turn to different assets offering more dynamic returns.

Q) What are you expecting from the budget?

Given that this is an election year, Jaitely will have to walk a tightrope between fiscal prudence and populist measures. HNIs will hope for a status quo as far as taxes are considered. Start-ups are wishing the Angel Tax is scrapped so that the ecosystem can improve.

In general, we expect an increase in the standard deduction limit for tax payers; an increase in the limit for investments under 80C; some sops for affordable housing segment and a couple of measures to reduce the burden faced by farmers.