2015 Rewind. Private wealth no longer physical

India is touted to be the ‘Next Big Emerging Economy’ with its GDP expected to outpace that of China in the next decade.

Though the new government has not really delivered on its promises, India has grown 7.3 per cent in FY15 and is expected to grow at similar levels in FY16; one of the fastest growth rates in the world. The growth is expected to continue in the coming years too.

But have Indians been able to grow their wealth in recent times? The latest annual India Wealth Report 2015, released by Karvy Private Wealth, provides some answers.

The total wealth held by individuals in India has grown 8.9 per cent to ₹280 lakh crore in FY15. In what form do people hold this wealth?

It is held in physical assets, such as real estate, gold, silver, diamond, platinum and in financial assets, such as direct equity/stocks, bank accounts and deposits, insurance, mutual funds, provident funds, investments through post offices, pension funds, cash and in some alternative products like private equity, high-yield debt instruments, hedge funds and structured products.

Individual wealth in financial assets grew 19 per cent while that in physical assets fell 2.3 per cent.

The former has risen to ₹160.5 lakh crore now from ₹134.7 lakh crore in FY14, and is expected to double to ₹326 lakh crore in the next five years.

On the other hand, physical assets are expected to grow at a slower rate of 4.4 per cent per annum over the next five years.

Direct equity has been the flavour of the year in FY15; becoming the largest asset class with a growth of 29 per cent (₹34,39,861 crore) over the last year, overtaking fixed deposits and bonds.

Most financial instruments have clocked a high growth rate over the last year.

It is also noteworthy that there has been a trend reversal in the investment pattern this year.

For the last many years, since the 2008 financial crisis, 60-65 per cent of fresh money was invested in physical assets, predominantly real estate and gold. The balance 35-40 per cent was invested in financial assets. In FY15, about 54 per cent of fresh money has been invested in financial assets.

Physical assets, on the other hand, saw subdued interest; the wealth held by individuals in physical assets reduced marginally.

This could be on account of reduction in prices of gold, other precious metals and gems.

Subdued price movements in the real estate sector could also be influencing this trend.

For a country obsessed with gold and real estate, it is not surprising that they comprise 92 per cent of wealth held in physical assets. In FY15, individual wealth in real estate saw a modest 4.89 per cent increase to ₹52.86 lakh crore.

Wealth in diamonds at ₹7.99 lakh crore also saw positive growth. Individual wealth in gold, however, fell 8.6 per cent to ₹57.16 lakh crore.

Wealth in other precious metals like silver and platinum also fell 6.04 per cent and 17.25 per cent to ₹1.84 lakh crore and ₹4,698 crore, respectively.

Physical assets are expected to grow at a slower rate of 4.4 per cent annually for the next five years to reach a level of ₹148 lakh crore.

While wealth of global HNIs grew 12 per cent, HNI wealth in India rose 28 per cent last year. According to the India Wealth Report, for Indian HNIs, equity is the preferred asset class.

The choice of the second-best asset class is interesting. While debt instruments are the second-best asset class for professionals and retired individuals, real estate investments stand out as the second-best choice for self-employed and salaried individuals. It is important to understand that each individual will have a different goal; his risk appetite and investment decision will be based on this fact.

While the report identifies trends, it is suggested that one should always take professional help to develop and maintain a balanced portfolio of both financial and physical assets.

The focus for the next five years is however, likely to be on the more liquid and less emotional financial assets. Within financial assets, mutual funds and alternative assets are expected to grow at the fastest rate.

The writer is CEO, Karvy Private Wealth

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