Are Indians Making Their Money Work- a report by Aditya Birla Sun Life AMC

Industry Insights
1

Sharing some interesting tidbits from a report by Aditya Birla Sun Life AMC. The report is titled: Are Indians Making Their Money Work?

Overall, the report talks about how Indians have started to shift to financial assets (bank deposits, equity, etc) from physical assets (gold, Real estate). Although physical assets are a still a big chunk of the entire portfolio of a household.

The report also compares returns across various asset classes and shows how equity allocation could have increased returns, growing affluent households in India and a comparison between US and India.

More stats, and graphs, are here:

Within financial assets—bank deposits and cash still account for a major portion. And, physical assets still dominate at two-thirds of total assets

Equity exposure has doubled from 2.2% in 2013 to 4.7% in 2023 but remains low compared to other countries. BTW, equity allocation in US is 35% in households.

One slightly interesting bit was this India’s map that shows state wise traditional assets—3 states: Maharashtra, Goa and UP have more than 13L in deposits with banks.

The report estimates if household allocation was split 70:30 between equity and debt over the last 5 years, it could have delivered a portfolio CAGR of 10% vs 8.5% from the historical allocation.

Traditional household asset allocation has led to a drag of 1.5% in the 5-yr portfolio CAGR or a loss of ~INR 55 trillion in investor wealth over the past 5 years.

The report projects equity allocation as a percentage of household assets could double to 10% over the next decade, driven by the India growth story.

India is rising on the global stage, aided by factors like global offshoring, digitalization, and the energy transition.

This is USA’s GDP nominal GDP👇

BTW, IMF recently said that India might take over Japan’s GDP next year.

It cites the rise in the number of affluent households (per capita income over $10,000) as a key trend.

Equity mutual funds as an optimal way for retail investors to access equity markets and benefit from professional fund management, diversification, and mitigation of risks. It highlights the advantages of SIPs for disciplined and rupee-cost averaging-based investing.

US<>India parallel

Till 1990, allocation to financial assets in the US was declining. However, post 1990, there was a reversal with increasing allocation to financial assets like equities. This was aided by regulatory changes allowing retirement funds to invest in listed equities.

Currently, financial assets constitute 70-75% of US household assets, while physical assets are just 25-30%. Within financial assets, allocation to equities has been consistently over 30% and was nearly 40% in 2022.

A similar trend could play out in India over the next 25-30 years as the economy sees sustained growth.

8 Likes
2

Interesting information and detailed one at that.

Few points.

Can we compare USA equity participation with that of Indians when there is no FDs which offer 8% p.a and for Senior Citizen 0.50% addition in USA.

This is surprising - I thought Kerala would be the topper with NRI’s depositing money into the Banks in the state.

The difference of 1.5% is very small when compared to the risk, But the plus point could be this covers the March 2020 crash. if the crash was not there, the difference could be higher I guess.

On hindsight, and when the market is at the higher level, everything looks hunky dory and this creates the FOMO effect. I hope investors see the positives and negatives especially the march 2020 period and then evaluate their asset allocation. That time was bad, even reputed AMC shut few funds due to redemption pressure.

3

Thank you for the link and your view with data . Value research did a similar take on where the savings are going and the spends are too.

My understanding is that India’s growth story doesn’t link to the market growth. So basically institutional investors picking the stocks that go with the country’s growth would make their investors rich. Is this assumption hold true ?
Most of the mutual fund companies, DPs, and AIFs seem to be selling the India growth story.

Isn’t growth indirectly mean spending habits of Indians have increased ? Does it not effect liquidity, exposure to higher debt risks, no or lack of savings lead to risky future ? Does this also mean we going to see a down cycle ? Please correct me.

The entire kyc, ekyc, ckyc and so on is still implemented immaturely . Every few months new rules are punishing the investors and asking for resubmissions . Value research did a similar take on it and one of the smart solution is that accept funds only via the bank account that is KYCed. no fin influencer not even the popular DPs don’t talk about the mandatory KYC process and the whole shebang of redoing it every few years again only for compliance.
If this cluster-mess of compliances do not stop, I suppose most investors would pull out their investments and keep them back in traditional assets (land, house, gold and so on).

Taxes are at slab on debt while 10% LTCG for long term and they STILL would want STT even now that taxation is present on long term gains. If big investors would want to balance out during market highs, slab rates on debt doesn’t make sense. If the govt would want big retail and HNI participation in the debt funds, the debt taxation must change and STT should have been erased out of existence.
If this doesn’t change, then govt at least should think of having a derivatives based mutual funds for hedging .

1 Like