India's alternative assets market to grow 5x to $2 trn by 2034: Report

Wealthy Indians offer 'significant growth potential' for such assets, it says

India's alternative assets market will grow five-fold to $2 trillion by 2034, said a report on Tuesday, referring to investment options outside of traditional investments such as stocks, bonds and cash.

 

The market has $400 billion in assets under management (AUM) and its surge will be driven by investor sophistication, portfolio diversification and favourable regulations, according to Avendus Captial’s study called 'India Goes Alternatives'.

 

The study said there is "significant growth potential" for alternative assets because of the rising number of high-net-worth individuals (HNIs). It highlighted that alternative investments in India are outperforming traditional investment options and attracting increased interest from HNI and ultra HNI segments. This trend aligns with global patterns, where alternatives have seen their share double from 10 per cent to 20 per cent of total global AUM between 2005 and 2020.

 

 

“The emergence of alternative investments in India marks a fundamental shift in our investment landscape. We’re seeing a fundamental restructuring in how capital is deployed," said Anshul Agarwal, managing director and co-head, consumer, FIG & business services investment banking at Avendus Capital.

 

"Driving this shift is the synergy between regulatory enhancements, technological advancements and a growing base of sophisticated investors. As the market evolves, we observe a convergence of global trends and local market dynamics. This uniquely positions India not only for significant expansion in the alternatives market but also as a potential leader in innovation among emerging economies.”

 

Snigdha Khemka, director, consumer, FIG & Business Services Investment Banking, Avendus Capital said, “Alternative investments represent the next phase in the Indian investing journey. They are poised to serve as a key catalyst on India’s path to a $10 trillion GDP (gross domestic product). We’re seeing multiple alternative investment firms intensifying their focus on India gearing up for the next wave of growth, where diversification will be critical."

 

"This may lead to consolidation and listing in the near future. Globally, alternative asset managers command a significant valuation premium compared to traditional asset managers. Indian markets could see listings of various alternative funds which would be at premium valuations due to their superior alpha generating potential,” said Khemka.

 

Returns from active asset management in India have stabilised over the years, said the study. This shift has led to growing demand from HNIs for more complex and differentiated investment options, such as alternative assets, which have the potential to deliver higher long-term alpha. HNIs allocate an estimated 7-8 per cent of their total AUM to alternatives, "indicating significant under-penetration in this segment".

 

The projected doubling of total HNI and UHNI wealth in India to $2,000 billion by 2027 is expected to drive demand for alternative investment funds, supported by "continuous regulatory reforms" by the Securities and Exchange Board of India.

 

This growth signals a broader evolution in India’s alternatives industry, which has transitioned from a traditional savings-focused model to a more sophisticated and diverse market. India’s share of Asia-Pacific private equity and venture capital (PE-VC) investments rose to nearly 20 per cent in 2023, up from 15 per cent in 2018, underscoring the country’s growing influence in the region.