Mar 13, 2024
GPB: How has the Indian private banking/ wealth management industry evolved over the past few years?
Shiv Gupta, Founder and CEO, Sanctum Wealth: Over the last few years, the wealth industry in India has grown in scale. The amount of wealth creation that’s taken place, accompanied by financialization and more assets finding their way to organised wealth management, means the sheer size of the industry has grown, albeit there’s still quite a lot of headroom for growth. The industry has also grown in scope and in terms of the product universe, across alternative investments, fixed-income sales and easier access to international investments. The wealth management industry’s toolkit has expanded and will continue to expand.
There have also been several regulatory changes that have taken place, relating to the manner in which products and services are delivered to customers and the way they are charged. The [Securities and Exchange Board of India] has been active in introducing new guidance and rules in the conduct of the business so policy will continue to evolve, and as the market becomes more sophisticated, I suspect there will be a few more things from the regulator.
In terms of participants in the industry, we have seen several new entrants, including a foreign bank that relaunched its private banking business in India. India is seen as a big growth industry, so interest from different players is high. Additionally, there is some element of technology development with a lot of players trying to provide technology solutions for different parts of the wealth management pyramid.
Clients have become more sophisticated, and with an expanding tool kit, there is a broader set of investment themes and instruments they’re dealing with. They expect wealth managers to be able to provide for these, which means that managers need to ensure they build capacity to do that, advise on those and deliver.
GPB: How are you using digital tools to cater more effectively to India’s wealthy and how has the market responded?
Shiv Gupta: In general, the industry still has quite a long way to go in fully utilising the potential of the technologies that do exist that could very usefully be deployed in wealth management and the delivery of wealth management. I think some progress has taken place, but the industry still has a long way to go. When I say the industry, I mean traditional wealth managers and would exclude digital-only wealth platforms that have sprung up because they are predicating everything on technology.
The pandemic certainly accelerated the use of technology, particularly digital communication tools, which has continued even after the pandemic. A lot of the workflows have been digitised and automated and contributed to internal efficiencies in organisations. On the client side though, there is a long way to go. The biggest challenge is adoption and habit change, and it will be a while before we see enough of a habit change to replace the sustaining approaches and technologies.
At Sanctum, a lot of the workflows have been digitised and automated. We have deployed tools like robotic process automation for a lot of the processes in the back office and in the middle office, leading to a great increase in productivity. On the client side, our core systems have been upgraded to reflect more analytical tools for clients, more mobile tools for clients, so some of the interactions of the firm has become more driven by technology.
GPB: How have the priorities of the Indian wealthy changed?
Shiv Gupta: Everybody has a unique basket of needs depending on things that are important to them. These include capital preservation or growth, what are the objectives of the portfolio, the actual portfolio performance, risk management, ideation, ease of administration and estate planning. What is a priority is an individual thing. But I do think there is an emphasis on portfolio performance now because we have been in a buoyant economic environment and the Indian markets have been performing well for quite a long time. This would be more of a circumstantial priority at this time as markets have been doing well.
Estate planning is a priority at one level broadly because there is an intergenerational wealth transfer that is taking place. A lot of the people who represent the first generation of the new wealthy in India continue to hand over to the next generation leaders. So the way your wealth is structured, the way estate planning is done, has been a priority.
In general, wealth managers have been broadening their offerings to cater to these needs. They’re getting better at profiling clients. They are getting better at delivering some of these newer instruments and products to clients and having conversations around estate planning, which are more sophisticated than they might have been before as client needs are also becoming more complex. There is, for instance, a much bigger cross-border element that has crept into discussions as clients are becoming more international, setting up companies outside and as their restructuring needs are also getting more complex.
GPB: On portfolio performance, are clients being realistic or has the strong market performance impacted that?
Shiv Gupta: That’s always a difficult question to answer. There are excesses in the market, as it always happens when there is so much positive sentiment. In India, the huge structural story has merit in and of itself. You may find that the market is quite richly valued, and as people haven’t seen any meaningful correction for quite a long time, their perception of risk may not take into account real possibilities should something go wrong. It’s a risk on sentiment and therefore, there may be cases where people’s expectations are in a zone where it’s going to be hard to meet them.
GPB: What are the big investment themes and trends among India’s wealthy?
Shiv Gupta: Interest in a broad area of asset classes has emerged amongst Indian clients as an investment theme. India remains a favoured investment destination given its unique position in the global economy, where the demographics and some of the reforms that have taken place have placed it in a very attractive elevated growth phase. Investors in India also recognise that and they’re seeing the result of that in their businesses. It does remain a preferred investment destination for investors. There is interest also in international investments, some of which is driven by specific needs that someone has, but the overwhelming attention is on India.
Equities have been a favoured asset class, and the performance has been quite spectacular over the last few years. We’ve seen mid-caps and large caps getting a lot of attention and consequently flows as well. There is lots of action in the private market space – both private credit and private equity – to both funds and direct investing, particularly from the upper end of the high-net-worth pyramid. There has been interest in structured credit, in high yield credit in its various forms, all the way from performing credits to special situations.
For private investments, there is an opportunity in the space and that opportunity exists because a large part of the Indian economy is not in the listed public markets space. If you think India is a great investing opportunity for the next several years, and you want to capture a broader set of opportunities, some of them are only going to exist in the private space.
GPB: What’s your outlook for the Indian wealth market? Where are the opportunities and what could challenge growth?
Shiv Gupta: It is an exciting market and has a combination of tailwinds and headwinds. There are about four or five forces driving the market. Certainly, the macroeconomic opportunity is huge and there is huge headroom for growth. What we have achieved so far – be it the financialization taking place or more people entering capital markets – is only the tip of the iceberg.
The product universe expansion I referred to earlier is another factor. If India becomes more open and becomes larger and more liquid, you’ll see more and more investment avenues opening up, different investment structures, different types of profiles and easier access to international investing. Regulation has been a bit of a headwind, but it is a positive for market development. Then there’s technology, which is a huge opportunity, both from a point of view of internal efficiencies and better client service.
Then there is competition. The competitive intensity is so high, it puts pressure on margins, which can be viewed as a headwind. An interrelated point is the people agenda. Whilst there is a lot of technology that can be leveraged, human contact is still quite important. Having a steady relationship manager is important and there is a huge demand-supply mismatch at the moment. I would hope that members of the industry will continue to develop more talent as that is important.
For more information, please visit www.sanctumwealth.com
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