Local wealth managers make their mark in India’s HNW space

By Yoon Ng, 31 May 2017Market Intelligence | Investment Products

India’s economy has stabilised after the shock demonetization in November last year. Its huge economy and favourable demographics continue to capture the interest of foreign asset managers, though not quite as intensely as China does at present. Traditionally, gold and real estate have dominated the investment preferences of India’s wealthy. But with the rise in equity markets over the last few years, there has been a tangible shift in preferences with investors eyeing financial products as well.

This shift may have been given a boost by the cash ban. At that time of the demonetisation, some fund managers in India were optimistic that new capital inflows would be generated. This has been affirmed in India’s mutual fund space, helped by declining interest rates that prompt investors to look beyond bank deposits for yield, as well as increased investments in systematic investment plans (SIPs). The assets under management (AUM) of the mutual fund industry grew from Rs16.46 trillion (US$254.1 billion) at the end of 2016 to Rs18.29 trillion by the end of March this year, according to data from the Association of Mutual Funds in India (AMFI). It is a signal that India’s economy is in good health in the wake of the impact of the demonetisation.

However, AMFI’s data showed that the concentration of assets among the biggest mutual fund players has intensified. The top 10 asset managers, which represent about a quarter of all mutual fund companies in the industry, contributed 88% of AUM growth over the period. The AUM share of the top 10 players rose to 80.6% by the end of March this year, from 78.4% the year earlier.   

The dominance of the largest players has historically contributed to making it very difficult for foreign asset managers to break into the market. We have seen in many markets in Asia that whenever a few players dominate a mutual fund market, distribution costs for newcomers tend to be much higher. Meanwhile, if foreign asset managers are thinking of forging partnerships with the leading players, they are probably already too late. Most of the local giants have already hooked up with big foreign firms, as reflected in names like ICICI Prudential Mutual Fund, Reliance Nippon Mutual Fund and Birla Sun Life Mutual Fund.  


Against this backdrop, it is not too surprising that several foreign asset managers have left the country in recent years due to factors that include the high costs of doing business in India as well as regulations on foreign exchange and investing overseas. The latest to exit was JP Morgan Asset Management last August. It followed the departures in recent years of the likes of Goldman Sachs, Morgan Stanley and Fidelity International. 

 There may however be one area of interest for asset managers in India -- the high-net worth (HNW) space. A lack of penetration in this space has seen the number of start-ups competing for investors’ assets increase sharply in recent years. In fact, the fastest AUM growth is coming from relatively new local players like IIFL Private Wealth Management, Centrum Wealth Management and Sanctum Wealth Management.


Local wealth managers have gained in prominence in recent months on the back of some corporate activity which, in turn, lend some insights to their strategy for this space. For instance, Sanctum, which was created via the acquisition of RBS’ India private banking business, opened its fifth office in Kolkata in May. This adds to its offices in Mumbai, Bangalore, Delhi and Chennai. Branch expansion is a strategy that can be costly, but the underpenetration of wealth management services across India makes it a risk worth taking. Even the big local banks are not spared as Religare, one of India’s diversified financial services holding companies, sold its wealth management business to newcomer, Anand Rathi Wealth Management in February last year.

The emergence of local wealth managers in India could lead to at least a couple of positive outcomes. First, there could be outsourcing opportunities, albeit small, for foreign asset managers as local wealth managers may lack investment expertise in certain areas that their clients are demanding. Second, local wealth managers might have to start thinking of partnerships with foreign asset managers in order to go up to the next level. This is particularly relevant as they expand beyond local shores to tap on non-resident Indian’s (NRI’s) wealth. The wealth management space in India will thus be at least worth watching for such opportunities going forward.

Spence Johnson is in the midst of researching more deeply into the wealth management space in India, the results of which we hope to highlight in our inaugural wealth management report for the Asia Pacific region later in the year.