NRI investors' interest in India growing: Bank Julius Baer's Rahul Malhotra

India’s wealth management space is highly competitive and yet Swiss bank Julius Baer is not fighting shy of raising the ante. RAHUL MALHOTRA, head-private banking, global India and developed markets, Bank Julius Baer, in conversation with Samie Modak, discusses key trends in the Indian private wealth management industry. Edited excerpts:

How big is the private wealth management opportunity in India?

Over the past few years, there has been a significant rise in the number of high networth/ultra-high networth individuals (HNIs/UHNIs) in India. This is driven by several factors, including the burgeoning start-up ecosystem, number of unicorns being created, increasing share of the organised sector in the economy, and a buoyant equity market.

The liberalised remittance scheme (LRS) is now being used by HNIs/UHNIs as they seek to diversify their wealth across asset classes and geographies. Except for the pandemic year 2020, there has been a steady rise (in excess of 30 per cent per annum) in LRS remittances over the past four/five years.

In the first two months of 2022, LRS remittances were already at $3.8 billion, indicating continued momentum among investors looking to invest money offshore to diversify their portfolios.

HNIs have mostly been participating in the equity bull run — directly through stocks and managed equity solutions. 

India’s wealth is estimated to cross the magical figure of Rs 400 trillion over the next five years, with growth expected at a compound annual growth rate of 27 per cent.

What is underpinning growth in India?

The affluent middle class is expanding, with nearly 80 per cent of Indian households predicted to be middle class by 2030 — up from about 50 per cent in 2019. India saw 11 per cent growth in HNIs last year. This economic maturity has also been accompanied by emotional maturity from investors. Even when Covid-19 upended markets, most investors focused on recalibrating rather than panicking and exiting their portfolios.

Why do non-resident Indians (NRIs) prefer India vis-à-vis other global markets?

Stability in the Indian economy reduces the risk of investment. This explains why NRIs are drawn to India. We see increasing interest from NRIs to invest in India in sectors and instruments such as real estate, mutual funds, alternative investment funds, corporate fixed deposits, and other investment assets.

The minimum investment requirement in India for many asset classes is fairly low, making it easier for NRIs to invest here. Many prefer India to other geographies as they understand the risks of investing in India better than global investors and hence, have a bigger appetite.

India is also now the sixth-largest economy in the world, and by 2050 is forecast to surpass the US as the second-largest economy.

India saw 11 per cent growth in HNIs last year. This growth is going beyond the biggest cities, which bodes well for wealth management players.

How challenging is the competitive landscape? Is the company making investments to grow its India franchise?

The wealth management market in India is becoming highly competitive with digital disruption and increasing need for personalised client engagement.
 

As large financial services firms like us digitalise our wealth management business and new digital players enter the market, competition is becoming increasingly intense, making client experience the new battleground.

The entry of new platforms offering wealth management solutions is also priming the market for consolidation. We are currently the largest foreign wealth manager in India and our goal is to be the largest wealth manager in India.

We have ambitions to grow, and have a five-year business transformation strategy in place where we will continue to invest in India.
 

We have set up a global NRI desk in Singapore dedicated to managing India offshore client relationships, and will continue to hire strategically and invest in strengthening our Indian franchise.

How have the assets under management (AUM) changed this year?

Several large global wealth players saw market corrections impacting AUM. As of the first half (H1), our AUM is CHF 428 billion ($445 billion). H1 has been exceptional, with markets clocking their worst half year in decades as geopolitical instability and macro fears drove jittery investors to the sidelines. While we are conscious that the macroeconomic outlook remains uncertain, the prospects of the wealth management industry remain strong. This will be further compounded when client activity resumes, driven by greater clarity in the macroeconomic outlook, an improvement in geopolitical stability, and as pandemic restrictions in Asia are lifted.