The Indian Wealth Management industry is gearing up to embrace the new opportunities that the new India is presenting with a surge in the number of high net worth individuals (HNIs) and expected strong economic growth. The industry is witnessing a massive change in customer demographics with increased participation from the younger generation, people from Tier 2 & 3 tier towns, and affluent people from rural areas who are rapidly shifting towards professional wealth management services.
As is the case with almost all other industries where technology has improved by leaps and bounds, it will play a pivotal role in the next leg of growth of the wealth management industry in India. According to a report by Motilal Oswal Financial Services, “Technology is a key focus area for all companies in this field, with an emphasis on meeting the needs of the three stakeholders: clients, relationship managers (RMs), and back office.”
New trends emerging
The industry is seeing the emergence of new interesting trends as it embraces new technology. Thanks to the slew of new digital apps, investors these days have access to a large basket of products to choose from. This was not the case earlier when the non-traditional products and wealth management tools were the privilege of a handful of HNIs.
The internet revolution in the country has played a big role in the changing trends seen in the industry. The share of contribution to the assets under management (AUM) from rural areas and tier 2/3 cities, small entrepreneurs, women and millennials is rising rapidly, compared to the earlier trend of metros being the biggest contributors.
According to the report from Motilal Oswal, “Wealth management is expanding beyond the traditional products and is seeing a surge from products such as passive funds, unlisted equities, stakes in start-ups and platforms, REITs and InvITs, et al.”
People are increasingly moving towards financial assets. With increasing financial awareness, decision-making has been shifting to mathematical, risk-based, and return-focused from the earlier feature of emotion-based decision-making. This has driven the customer’s inclination towards financial assets.
However, the traditional products remain the bread & butter of the industry even though the availability of exotic products is on the rise.
“Customers are now more inclined to invest internationally,” the analysts at Motilal Oswal added. Technology has brought out easier tools for the retail and mass affluent class to invest abroad. “However, the same for HNIs has not been as easy, but a huge demand exists.”
Plethora of opportunities
India’s strong fundamentals and growing per capita income present a huge opportunity for growth of the wealth management industry in the coming future.
The new breed of fintechs can play a major role in providing advanced wealth management tools to RMs and customers. Traditional banks can tie up with these fintechs to offer the right technology to their existing large customer base and extract the most out of it.
The report from Motilal Oswal highlights that, “The common perception that HNIs/UHNIs will not shift to tech platforms needs to be changed as wealth transfer between generations will drive a massive transition to technology.”
At the same time, training and upskilling of resources will hold the key to capturing the incremental market share.
Technology causing disruption
Though people will be eager to erase the memories of the pandemic, it had its own silver linings too. It hastened the development and adoption of technology by a few years as wealth managers had to quickly adopt a digital approach as personal engagements became impossible/difficult during the pandemic.
“Customer expectations have gone up with regard to the turnaround time. And real-time access to information and technology has enabled wealth managers to meet this requirement through bots,” added the analysts from Motilal Oswal.
“Customer expectations have gone up with regard to the turnaround time and real-time access of information,” the report from Motilal Oswal added. Technology has enabled wealth managers to meet this requirement through bots and now clients can access all the information about their portfolio through multiple digital channels, which was not the case earlier.
Strong players in the industry
ICICI Securities (ISec) and IIFL Wealth Management (IIFL Wealth) are two of the strongest listed players in the Indian Wealth Management space. They have asset bases of Rs 2.7 trillion and Rs 2 trillion respectively. They are direct plays in this growth story.
“We expect robust AUM growth for ISec, given its strong focus on cross-sell opportunities among existing customers, adoption of open architecture to source customers, and implementation of technology and digital strategies to improve its offerings,” the report from Motial Oswal said. “The stock trades at a FY24 P/E of 13.9x and we maintain our ‘Buy’ rating, given our overall confidence in growth in retail equity investing in India.”
IIFL Wealth, on the other hand, is focusing on clients with a net worth in excess of Rs 25 crore. It plans to enter the mass affluent segment (with a net worth of Rs 5-25 crore), and launch customised products for the segment over the next year.
“For this segment, the approach is likely to be different, with increased usage of digital and tech capabilities, both from the client and RM usage perspectives,” the analysts added. “The stock trades at a FY24 P/E of 19.4x and with RoE in excess of 20 percent and dividend payout of more than 70 percent likely to be maintained, we find valuations attractive and maintain our ‘Buy’ rating.”
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