India's Changing Wealth Landscape

India is undergoing significant changes in its wealth landscape, driven by strong economic growth and an expanding middle and high-income population.

As millions of Indians experience rising incomes, the financial ecosystem is poised for transformation leading to an evolution in wealth distribution and market dynamics.

This evolution also brings with it opportunities for wealth managers. To leverage these, we explore three key trends and drivers shaping this landscape, providing a nuanced perspective on the opportunities and challenges that lie ahead.

1. Rapidly Growing Middle and High-Income Segments

The population mix is shifting towards a larger proportion of middle-class and rich individuals. As shown in Exhibit 1, from FY22 to FY27, the number of individuals in the "Rich" category (annual household income >INR 30L) is expected to nearly double from 169 million to 306 million, while the "Middle class" segment (<INR 30L) is projected to grow from 715 million to 933 million.

2. Total Household Wealth

The total household wealth pool in India (incl. NRI assets) is set to expand from INR 622L Cr in FY23 to INR 932L Cr in FY27P, at a 13% CAGR.

There has been a noticeable shift from traditional asset classes like gold and real estate towards financial products (projected to constitute a 56% share in FY27), including mutual funds and provident funds.

3. Expanding Financial Wealth

The increase in total wealth is underpinned by a rise in financial wealth, as shown in Exhibit 2 and 3. Total household financial wealth is anticipated to expand from INR 318L Cr in FY23 to INR 522L Cr by FY27.

Total Households

The mass affluent segment (INR 40L-4Cr) shows growth potential, expanding from 14 million to 21 million households, adding 7 million new households by FY27. The HNI 1 segment (INR 4-25Cr) is also set to increase from 0.56 million to 0.8 million households. Additionally, the NRI segment is poised for robust growth, with households rising from 3.6 million to 5.2 million by FY27.

As mentioned before, this shift in investment preferences reflects a notable move among Indian households away from traditional savings vehicles. The share of term deposits declined from 29% in FY14 to 18% in FY23, with projections indicating a further drop to 14% by FY27. Cash holdings have similarly decreased from 12% to 10%, expected to reach 8% by FY27.

In contrast, there is a rising inclination towards diversified, market-linked products. Mutual funds, for example, saw their share increase from 4% in FY14 to 7% in FY23, with further growth to 9% projected by FY27. Provident funds also expanded from 8% to 16% over the same period, with a projected rise to 20%. These trends underscore an increasing appetite for higher returns and a readiness to adopt traditionally riskier, growth-oriented products.

In conclusion, India's evolving wealth landscape presents a golden opportunity for wealth managers. The future is bright for those who can innovate to harness these trends, providing unparalleled value to India's burgeoning affluent population and securing a significant foothold in this dynamic market. As India's wealth continues to grow, so too does the potential for transformative financial growth and prosperity.