The Indian wealth market is one of the fastest growing in the Asia Pacific region. While international wealth managers have tended to favor countries such as China and Japan to consolidate their growth, regulatory uncertainty has delayed their entry into the Indian market. However, with a burgeoning population and a growing economy, high net worth clients in India offer a significant opportunity.
As one of the few major world economies still expecting robust economic growth in the coming years and with a population larger than any country bar China, India has been a logical target for businesses eager for expansion. The economic growth has resulted in unprecedented wealth creation in the country, which now boasts one of the world's fastest growing wealthy populations. India has attracted the attention of international wealth managers but has not seen the same avalanche of entrants in recent years as other markets such as China. While the Indian market is attractive compared to many mature European countries, some obstacles remain which incline many major international wealth managers to prioritize other Asia Pacific countries instead. Fortunately the attraction of India as a market for growth is enduring, while its obstacles should prove passing.
First off, what makes the market attractive? The Indian wealth market for high net worth (HNW) individuals is predicted to grow by approximately one fifth in 2011, making it one of the fastest growing in the region, above even China. Indeed, such impressive growth has piqued the interest of various international wealth managers including Barclays Wealth, which originally entered the Indian market in late 2008. In June 2011 the bank announced plans to expand further in the country but this has not sparked a headlong rush by many others, although Morgan Stanley, Royal Bank Scotland, and Bank of America Merrill Lynch also added staff.
The type of wealth client that is found in India is also a highly desirable one. Wealth clients in India tend to be entrepreneurs or business owners and are split between an older cohort of over 65s and a similar proportion in the 31-50 age bracket. These entrepreneurs, besides being in need of traditional wealth management services for their private fortunes, often require the use of investment bankers when approaching a liquidity event which could prove lucrative.
Indian HNW clients are in many ways ideal wealth clients with an above average knowledge of investments and risk, which has likely contributed to their general openness to new investment ideas and offshore investments. This plays nicely to the strengths of major international wealth managers that can offer sophisticated financial instruments which limit risk and diversify investments offshore.
What has tempered any rush of foreign wealth management firms into the Indian market is the current regulatory uncertainty in the wealth market. The Indian government, led by a subcommittee of the Financial Stability Development Council (a high-level body of the central government charged with oversight of the entire Indian financial market) concluded early in 2011 that it was necessary to strengthen the regulatory framework for banks and other companies which offer wealth management services. At present no single regulator is responsible for the wealth management market, which has resulted in different regulations for wealth managers depending on whether they operate from a bank or not. For example, portfolio asset management cannot be offered by banks that are covered by Reserve Bank of India regulations, but are available from the non-banks regulated by the Securities and Exchange Board of India. The prospect of significant regulatory overhaul has caused a great deal of uncertainty, making the Indian market less attractive to wealth managers than China, where no such uncertainty exists.
Moreover, while the growth rates are impressive in India the market for private wealth management services is currently very small, particularly compared to China and Japan. It is no accident that many of the HNW individuals in India are between the ages of 31 and 50. The market has only started to create substantial numbers of wealthy individuals during the last five to 10 years and only began to liberalize in the early 1990s, allowing entrepreneurs enough space to grow. In contrast, China took its first steps towards liberalization under Deng Xiaoping in the late 1970s and has a HNW population which is approximately 12 times the size of India's.
Fortunately for India its small population of wealthy individuals is likely to blossom quickly as high growth rates see its HNW population almost double over the next four years. That leaves the uncertainty of regulatory upheaval, which should stabilize as the regulators alight on a new framework. However, given the sedate pace at which official India moves this may take some time. With such issues dealt with, the highly lucrative nature of the Indian market will become irresistible to major international wealth managers. Until then, expanding wealth management operations in India will play second fiddle to other fast growing markets like China.