Big shift in savings into equities likely in 5 years

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The collective wealth held by Indians, Rs 202 lakh crore now, is expected to double to Rs 411 lakh crore in five years, says the India Wealth Report of Karvy Private Wealth.

Investments in real estate, equity, international investments will increase at a rapid pace and wealth in the shape of real estate will double in three years. The gap between physical (gold and real estate) and financial households savings invested every year will narrow, the report says.

In 2013, the total individual wealth in India had a higher concentration in financial assets (Rs 1,09.86 lakh crore, or 54.4 per cent) than in physical assets (Rs 92 lakh crore, 45.6 per cent).

Despite the stupendous growth and development of the financial markets since liberalisation, Indian individuals still prefer to invest a large amount of their wealth in physical assets (gold and real estate), which are worth Rs 92 lakh crore; the balance Rs 110 lakh crore is held in financial assets.

According to the report, asset composition of individuals in future will be in line with the global wealth composition pattern. Globally, individuals hold 26 per cent of their wealth in equities; in India the proportion is only 12.9 per cent. Debt assets globally held by individuals account for 43.9 per cent.

In India, it is 41.4 per cent, almost near global levels. Alternative assets like structured products and gold form only 10 per cent of individuals’ assets globally, compared with a high 30.2 per cent in India. Globally, real estate forms 20 per cent of total wealth compared with 15.6 per cent in India.

Going forward, direct equity holding will become the biggest asset class, overtaking fixed deposits, where currently most of individuals’ savings in India reside. While Indians’ gold and real estate holdings will be equal after five years, real estate will overtake gold thereafter, the report predicts.

In five years Indians will move away from physical assets like gold to equity in a big way. “While gold forms 30 per cent of individual wealth now, it will go down to 22 per cent.”

Sunil Mishra, CEO of Karvy Private Wealth, said, “The value of real estate holding with individuals is very large, but 73 per cent of it is in primary homes (that cannot be liquidated); the rest Rs 31 lakh crore forms the wealth in real estate.”

Rajesh Iyer, head of investments and family office at Kotak Wealth Management, said the composition between financial assets and physical assets would get redefined after the general elections once a new government is formed and there is more visibility of policies and actions. “Any future uncertainty can lead to this composition getting tilted in favour of physical assets and vice versa,” Iyer said.

Nishant Agarwal, head of products and advisory at ASK Wealth Advisers, said, “The concentration of physical assets is high in India due to lack of understanding and confidence in the market. The trust factor is far less; so people go in for physical assets. But this is positively changing in favour of financial assets as awareness is increasing.”

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