Wealth management in India is experiencing rapid expansion, becoming one of the fastest-growing sectors within the financial services industry.
This growth is fuelled by the country’s robust economic development and a rising number of ultra-high-net-worth individuals (UHNWIs) and high-net-worth individuals (HNWIs).
In recent years, the assets under management (AUM) in this sector have been increasing at an annual rate of 15-20%, with projections suggesting that AUM could hit $ 1.8 trillion in the next 4-5 years, reflecting a compound annual growth rate (CAGR) of 13-14%.
This remarkable growth is accompanied by a shift in asset allocation strategies. Investors are moving away from traditional investments like fixed deposits, gold, and real estate towards more dynamic asset classes such as alternative investment funds (AIFs), real estate investment trusts (REITs), infrastructure investment trusts (INVITs), private equity, and cryptocurrencies.
The increasing allure of these emerging investment avenues underscores a growing appetite for higher returns and innovative financial instruments.
Additionally, foreign investments are gaining traction, particularly among UHNWIs, with the Gujarat International Finance Tec-City (GIFT City) playing a crucial role due to its favourable tax advantages.
The sector is also witnessing the emergence of new customer segments, including millennials and women, who have distinct financial needs compared to traditional clients.
Women, in particular, are increasingly taking control of their investments, often with greater investible surpluses than their male counterparts. This demographic shift is compelling wealth managers to adapt their services to meet the specific needs of these new client groups.
Despite this promising trajectory, the industry faces several challenges. A major issue is the talent shortage, which affects various aspects of the wealth management value chain, from relationship management to operations.
The demand for wealth management services is outpacing the available talent pool, exacerbating the problem. Currently, investment in training and upskilling within the industry is minimal, accounting for less than 1% of overall expenditures.
To address this, there is a pressing need for increased investment in training programs and closer collaboration between industry and academia to cultivate talent from the grassroots level.
Technological challenges also pose significant obstacles. Many firms need help with issues such as siloed client data, disconnected workflows, and outdated systems.
To overcome these hurdles, companies are investing in comprehensive technology stacks to digitise client interactions, enable remote management, and improve operational efficiency. Innovations in technology are crucial for addressing these issues and enhancing the client experience.
To stay competitive, wealth management firms are increasingly focusing on strategic partnerships and collaborations.
By forming alliances with non-traditional service providers, such as sports management or concierge firms, and expanding their reach into lower-tier cities, firms aim to broaden their service offerings and geographical footprint.
These partnerships help mitigate the long lead times associated with developing new capabilities internally.
Looking forward, the wealth management industry in India appears poised for continued growth.
The sector’s expansion is supported by strong economic fundamentals, evolving investor demographics, and increasing sophistication in financial products and services.
With ongoing investments in technology and talent development, wealth management firms are well-positioned to overcome current challenges and seize new opportunities for sustainable growth.
This positive outlook suggests that wealth management will continue to be a pivotal component of India’s financial services industry in the years to come.
360 One: Target Rs 1,300| Time Horizon 1 Year
Wealth management in India is rapidly emerging as one of the fastest-growing sectors within the financial services industry, with AUM expanding by 15-20% in recent years.
360 ONE is looking to diversify its presence in the mass-affluent client segment & geography (lower tier cities + international regions).
On the core UHNI segment, it is expanding its presence to lower-tier cities. Given the growth opportunities & diversification, we expect PAT CAGR of 26% over FY24-26.
(The author is Head – Research, Wealth Management, Motilal Oswal Financial Services Limited)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
