2009 was a great year for high networth individuals

High networth individuals (HNIs) in India saw their wealth grow by more than half in 2009, led by a strong domestic economy and resurgence in equity markets.

The combined wealth of all dollar millionaires in India rose 53.8% to $477 billion in 2009, according to the Asia Pacific Wealth Report 2010 by Merrill Lynch Global Wealth Management and Capgemini.
This sharp rise in HNI’s wealth was the second best after Hong Kong, which saw a 108.9% rise and more than made up for the losses suffered during the financial crisis in 2008. In fact the
number of millionaires in these two countries grew the fastest in 2009 with HNI population in Hong Kong and India zooming up 104.4% and 50.9% to 76,000 and 1,26,700, respectively.

“The strong economic resurgence in India has been boosted primarily by India’s stock market capitalisation, which more than doubled in 2009 after dropping 64.1% in 2008. The increasing confidence by Indian HNIs, facilitated by the strength of
the underlying economy which grew 6.8% in 2009, has resulted in a surge in HNI wealth in the region,” said Pradeep Dokania, chairman, Merrill Lynch Wealth Management, India.

As per the study, conducted based on macro data, India now accounts for 4.9% of the total HNI wealth in Asia Pacific and is the fourth wealthiest in the region. However the HNWI wealth in Asia Pacific is still highly concentrated with Japan and China together accounting for 64.6% of the total wealth and 70.4% of total HNI population.

Among the various investment avenues, Indian HNIs continued to prefer equities with 32% of their overall portfolio dedicated to the same. Real estate allocations fell 300 basis points to 22% in 2009 as the HNIs became wary of real estate bubble, seeing no significant price correction in premium property prices despite liquidity crisis. However, their allocation to fixed-income products increased 300 bps to 25% in 2009 as they bought more of government securities. The Indian HNIs’ allocation towards cash and deposits stood unchanged at 13% in 2009 —- the least among all the Asia Pacific countries.

“Going forward, the allocation to equities is expected to rise to 38% by 2011 due to sound equity outlook, while the exposure to real estate is expected to drop to 19% as investors book profits at
higher levels and engage in balancing their portfolios,” said Atul Singh, head of Merrill Lynch Wealth Management India.

Investors in India continue to remain cautious about global outlook and prefer domestic markets and less complex products. Their exposure to home region stood at 82% on the back of strong economic outlook, while their exposure to alternative investments like structured products, hedge funds, derivatives, foreign currency, private equity and venture capital remained a mere 8% of their overall portfolio.

“However, going forward, proportion of asset allocations towards other geographies is likely to increase as Indian HNIs are becoming risk-seeking,” said Singh.

Though India is far off as compared to developed countries in terms of number of HNIs and their wealth, the high growth is expected to continue in coming years. “Going forward, greater economic expansion in emerging Asia markets like China
and India and positive would lead to HNI growth in these countries outpacing more developed economies,” said Dokania.