Indian wealth management industry is on a sustained growth path: Anand Rathi

The Indian wealth management industry is on a sustained growth path, given India's long-term economic prospects, positive demographics, rising income levels, and current low penetration. India enjoys one of the world's fastest-growing HNI populations both in terms of the number of individuals and wealth levels. The number of HNIs is expected to almost double at a CAGR of 12 per cent from 7.97 lakhs in 2021 to 14.07 lakh in 2026, most of the increase will be driven by young Indians getting wealthier.

“Historically, Indian households have been quite risk-averse and wary of investing their savings into volatile or uncertain return-based assets. Pursuing safe bets has always driven India towards investing in physical assets like gold and real estate. However, this pattern is slowly changing over time. Also, the country has seen a significant shift in attitude from capital preservation to wealth creation,” says Anand Rathi, Chairman & Founder, Anand Rathi Group in an exclusive interview with Bizz Buzz.

How do you see the markets in the next fiscal year?

We anticipate that the returns on large-cap stocks over the next 12 months will be in line with the long-term average. Consequently, we anticipate a return in the range of 11 to 13 per cent.

What sectors have performed well and will continue to perform well in the coming year?

No sector has consistently outperformed the benchmark indices since the pandemic. Nevertheless, capital goods is one industry that has been performing well since 2021. In the medium term, we anticipate financials, capital goods, infrastructure, and related sectors to perform well.

Do you expect RBI to reduce interest rates in the near future?

There could be a case for the Reserve Bank of India to reduce its policy rate in light of the anticipated significant decline in retail inflation in early 2024.

What are the key hits and misses for markets in 2023?

During the fiscal year ending in March 2023, there was a significant deceleration in the growth of earnings. Consequently, earnings growth was lower than previously anticipated. This is due in part to a slowdown in sales growth and in part to a contraction in profit margins.

However, the deceleration in earnings growth is primarily attributable to three industries: metals, oil and gas, and healthcare. Beyond these three industries, profit growth remained positive. The resilient and rising participation of domestic investors through mutual funds in the Indian stock market during the fiscal year ending in March 2023 has been one of the market's greatest positives.

How was the performance of the last quarter, what changed?

We have delivered strong performance for Jan-March 2022 (i.e. Q4FY23), even though the stock market has seen lot of volatility. Our consolidated revenue for Q4FY23 grew by 28 per cent YoY to Rs 147 crore and PBT by 35 per cent YoY to Rs 59 crore. AUM grew by 18 per cent YoY to Rs 38,993 crore as of March 31, 2023. This is due to strong growth in our client base and net new money (net flows) received from our clients. Our client base increased to 8,352 and net new money received from clients for the quarter grew by 40 per cent YoY to Rs 1,180 crore, this speaks of the value which we add to our clients.

Will the FY24 momentum continue to grow rapidly?

Our total revenue has grown at CAGR of 20 per cent from FY18 to FY23, PAT at CAGR of 30 per cent and AUM at CAGR of 21 per cent during the same period. The four engines of growth that will lead our way forward are in place: 1) Market returns on AUM. 2) Penetration in the existing 8,300+ clients’ families. There is massive scope for increasing our wallet share. 3) Addition of new clients by existing relationship managers (RMs) 4) Addition of new RMs who will add new clients. All in all, with these four engines, to get a 20-25 per cent growth in business is very reasonable. For FY24, we have given revenue guidance of Rs 661 crores and PAT guidance of 205 crores. We are very confident that we will achieve these numbers.

What were the healthy factors that contributed to the growth in numbers?

We offer wealth solutions to our clients from a long-term perspective, which has worked well in the past to achieve clients’ objectives even during volatile market scenarios. We are confident that our strategies will continue to help our clients achieve their objectives. Our approach for our client is holistic and uncomplicated. We also facilitate efficient tax planning, estate planning, succession planning and create Wills & Private Family Trust as part of our core objectives, without charging any cost to our clients. Our net new money received from clients for FY23 stood at Rs 4,896 crore, a growth of 78 per cent. We have added 1,270 clients in FY23 as compared to 973 additions in FY22. We also believe that our entrepreneurial, collaborative work culture and training mechanism are the critical factors for growth and success of our business.

What is the AUM growth that can be expected for the full fiscal year given the challenging environment currently?

We have given AUM guidance of Rs 47,000 crore for March 31, 2024, growth of about 20 per cent YoY.

How is the wealth management landscape changing in India?

The Indian wealth management industry is on a sustained growth path, given India's long-term economic prospects, positive demographics, rising income levels, and current low penetration. India enjoys one of the world's fastest-growing HNI populations both in terms of the number of individuals and wealth levels. The number of HNIs is expected to almost double at a CAGR of 12 per cent from 7.97 lakhs in 2021 to 14.07 lakh in 2026, most of the increase will be driven by young Indians getting wealthier.

Historically, Indian households have been quite risk-averse and wary of investing their savings into volatile or uncertain return-based assets. Pursuing safe bets has always driven India towards investing in physical assets like gold and real estate. However, this pattern is slowly changing over time. Also, the country has seen a significant shift in attitude from capital preservation to wealth creation.

What are your views on FPIs inflows?

India receives approximately 3 per cent of global cross-border portfolio equity flows on average. In the last ten years, India has received positive inflows every year with the exception of 2018 and 2022. However, in 2022 there was an outflow of over $25 billion from Indian equities. Yet, the outflow should not be interpreted as foreign investors withdrawing funds from Indian stocks alone. The cross-border portfolio outflow from the equity markets of all major economies was $165 billion in the same year. Consequently, global investors are withdrawing funds from equities as an asset class, and India was a part of this larger trend. In the recent past, however, the flows have become positive and in my view, these will remain positive in ling term.