Looking ahead 2018: Wealth management – Move from physical to financial assets
By Sunil Rohokale
Indian HNI and Ultra HNI investors who have traditionally favoured physical assets like real estate, gold, art, etc are gradually drifting from physical assets to financial assets due to the rising equity market and relative underperformance of other asset classes. Moreover, demonetisation has further accelerated this trend.
I believe that equity will remain the most favoured asset class among HNIs in terms of asset allocation in 2018-19 and will see the following trends. Banking, infrastructure and consumption led sectors look attractive. The roll out of the public sector bank recapitalization plan in 2018 should ultimately spur the credit offtake to corporate entities and MSMEs. Whilst this will facilitate banks to clean up their balance sheets, it will also enable them to ride the recovery in credit cycle led by a gradual revival in the private investments cycle. I believe the already buoyant retail credit will continue to surpass wholesale credit but the growth in latter will recover to early teens in 2018-19.
Moving on, government’s continuous thrust on infrastructure projects including the Bharatmala project, upgradation of Railways, Metro and Airport projects has helped construction companies who are struggling with stressed balance sheets to improve their order book position. Growth in consumption led sectors will remain buoyant backed by job creation across income classes, normalization of monsoon in past two years, support from crop insurance, adjustment of wages under the 7th pay commission and the continuing wave of populist government measures like farm loan waivers with general elections in sight in 2019.
IPOs / primary market offerings
Despite disruptions caused by structural reforms, IPO activities remained strongly buoyant. I expect investments in IPO activities to continue to remain stronger amid strengthening investor sentiment. We will see more primary issues from companies in the BFSI space including insurance sector companies, Asset management companies, small banks, HFCs and NBFCs.
Pre IPO funds
For India’s HNIs, pre-IPO funds seem to be the latest investment avenue of cashing on the gain from the equity-market bullishness with a large number of IPOs are hitting the market. As capital markets are likely to remain attractive in the medium term backed by strong macro-economic policies, these funds will gain traction among HNIs. It is pertinent to mention that this opportunity doesn’t have any history of long track record to arrive at any conclusion.
This asset class presents a strong counter cyclical investment opportunity for long term investors. The key investment themes in my view will be as follows: The extended sluggishness in the residential real estate sector for the last 4-5 years has kept the investors at bay. The sector’s preference as an asset class also lost its sheen with the structural and regulatory reforms like demonetisation and GST. Nevertheless, these reforms including RERA have ushered transparency and credibility to the sector which will reap benefits in the medium to long term. RERA will drive consolidation with large players being beneficiaries of this consolidation. The clean up in the sector will drive out the inefficient/incompetent players from the business.
I expect an uptick in end user demand mainly in the mid income and affordable housing segment led by government incentives and improved consumer sentiment. I expect prices to stabilise which have been on downward trajectory for some time now. AIFs focussed on mid income and affordable housing segment present an opportunity to HNIs to participate in the residential real estate sector which will be primarily led by these segments going forward. Most of these funds provide structured finance to developers with an equity kicker. In other words, the HNIs can expect preservation of capital with basic returns through interest and can also enjoy part of the profits through equity upside.
The writer is Group MD & CEO, ASK Group