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Locally minded advisory capabilities are key to targeting India’s HNWIs: IIFL WM

The wealth and number of India’s high net worth individuals (HNWIs) will skyrocket in coming years, according to the ‘IIFL Wealth Index 2018’, a research report just released by IIFL Wealth Management in collaboration with Wealth-X.

Such a breakneck speed of growth — more than 87% between 2016 and 2021 — would see India’s HNWIs amass INR 188 trillion of wealth by 2021, with the number of HNWIs in the country reaching just over half a million in the same timeframe.

But what does this quantum leap in wealth accumulation portend for competition dynamics amid local and international players jostling to manage both onshore wealth and that of the Indian diaspora?

“[Our] depth in product basket along with strong advisory capabilities, backed by a deep understanding of the onground local situation in India and experience in managing Indian investments is what significantly differentiates our offering from that of global banks,” Yatin Shah, co-founder and executive director at IIFL WM, told Asian Private Banker.

Comparing their core value proposition to that of international banks, Shah implied that the latter lacks local specificity as they cater to a wide global clientele by offering access to a broad range of markets and asset classes and by providing low-cost leverage against such portfolios.

“Indian equity or fixed income is only one of the hundreds of asset classes offered and a typical ‘India’ product basket primarily comprises two-to-three offshore Indian ETFs, a maximum of one-to-two active fund managers, and levered trade on dollar bonds of Indian banks or companies,” he said.

According to the report, the assets of India’s HNWIs are currently parked in investment funds (31%), followed by equities (16%), and fixed income (13%). Significantly, nearly half (48%) of survey respondents intend to increase their exposure to investment funds, 46% to equities, and 45% to alternative investments over the next 12 months.

“In an emerging market like India, there is still a lot of alpha in bottom-up stock investing and private equity — be it early stage or late stage pre-IPO,” Shah observed. “Even fixed income — we have seen significant alpha being generated through a combination of right tactical credit and duration calls.”

Despite the invigorating momentum at which India is seeing its riches snowball, there remain clear and present issues that keep the country’s wealthy awake at night.

The report found that the threat of jihadi terrorism is a top concern for 77% of respondents, followed by societal issues in India (73%), India’s relationship with Pakistan (70%), and currency volatility (62%), amongst others.

According to Shah, the biggest challenge for India’s private banking and wealth management industry in 2019 lies in its ability to demonstrate its advisory capabilities to their fullest, having experienced challenging and volatile market conditions over the course of 2018, coupled with geopolitical headwinds.

Advisory capabilities, for Shah, run the gamut of adhering to the right asset allocation and making use of sharp market movements to generate alpha via suitable tactical calls, to the constant review of portfolios to guard against excessive single manager or instrument risks, and the administration of unbiased advice.

“The ability of a private bank to demonstrate such capabilities in taking full ownership of not only portfolio construction but also portfolio review will go a long way in establishing long-term investor trust and increasing wallet share,” Shah said.

For Shah, the “much-needed transition” to an advisory model can only be achieved if the organisation and senior leadership team possess the long-term vision to invest significant capital in constructing world-class portfolio analytics and reporting platforms.

He also stressed the importance of driving organisational behaviour change towards process-led investing aimed at ensuring alignment between the long-term interests of the client, firm, and banker.

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Asian Private Banker