Inflation, slowdown to hit HNIs' wealth creation, shows report

The dark clouds of economic slowdown and dwindling stock market capitalisation threaten to hit the pace of wealth creation for India’s high net worth individuals (HNIs). There was a substantial rise in the number of rich and their wealth under management in 2009 and 2010, after a decline seen on the counts the preceding year on account of the global economic slowdown.

Wealth of HNIs in India grew by 22 per cent to $582 billion in 2010 from $477 billion a year earlier, while the HNI population in the country grew 20.8 per cent to 153,000 in 2010 from 126,700 the previous year, according to the Asia-Pacific Wealth Management Report released today. Those with investible assets of $1 million or more are considered HNIs. The primary residence, consumables and consumer durables are excluded when calculating investible assets.

A report jointly prepared by Merrill Lynch and consulting firm Capgemini affirmed that the Asia-Pacific region region would continue to be the engine of global growth through 2012, but added that the actions the governments in the region take to contain inflation and deflate potential asset bubbles would affect the pace of expansion.

Merrill Lynch Wealth management (India) Chairman Pradeep Dokania said HNIs were becoming cautious due to volatility and uncertainty and were not very confident about equity markets. So, fixed income was getting more prominence. The rising inflation was also affecting purchasing power, he added. In 2010, Indian HNIs increased their exposure to equities, real estate, gems & jewellery, reflecting a regained confidence, as the financial crisis subsided. The share of equities in their investments went up to 36 per cent from 32 per cent in 2009. At 36 per cent, the exposure to equities in India is far higher than the global average of 33 per cent.

The share of real estate in investments moved up marginally to 23 per cent from 22 per cent in 2009. The investment in gems & jewellery, too, went up to 37 per cent from 33 per cent.

Capgemini India Director (financial services and consulting) Bhushan Joshi said there was a possibility that the number of HNIs and their wealth would decline in future. There were concerns around economic growth (read slowdown) and stock market capitalisation (declining trend). Specific comments could be made after analysing data in detail, he said.

Pointing to the effect of a dip in stock market valuations, Atul Singh, head, Merrill Lynch Wealth (India), said the count of people in the HNI category was driven by market capitalisation in the stock market. So, the declining market capitalisation trend could lead to some people falling below the threshold.