The Indian Asset Management Market is valued at USD 865 billion with a significant range of expansion projected at a compound annual growth rate (CAGR) of 14%. As India continues to grow and evolve as a robust global economic powerhouse, the asset management sector in the country provides numerous crucial opportunities for investors seeking diversity in options, stable returns, and growth.
Market Transformation and Investment Trends
The investment market in India is undergoing a profound transformation that is propelled by an increased influx of retail investors, progressive and well-executed regulatory reforms, and a transition towards sustainable, ESG-focused investment strategies. Here are some of the investment trends that are reshaping the market:
1. Shift Towards Technology-Driven Sectors
The recent pandemic has remarkably accelerated the adoption of digital technologies and gadgets, catalyzing a significant and notable shift in investment trends. The necessity and requirements for remote solutions and the rapid digitization of services have led to tremendous growth in technology-driven sectors.
Sectors like EdTech, FinTech, and Life Sciences are sectors that experienced a greater inflow of investment. In contrast with traditional private equity and venture capital-funded projects like infrastructure and real estate which were detrimentally affected by slow growth during the pandemic, these areas of investment promise substantial growth and long-term value creation in India’s dynamic and evolving markets.
2. Mutual Fund Industry Breakdown
With an AUM of INR 37.22 trillion, the Indian mutual funds industry is attracting strong investor interest. This is a reflection of the sector’s maturity and the trust it has built to invest in mutual funds. The investor composition includes 55% individual investors and 45% of the investment is from institutions of which a significant 95% are corporate entities, highlighting the sector’s appeal to large-scale investors seeking guaranteed, stable, and high financial returns. This investor composition secures a steady flow into the mutual fund sector leading to its growth.
3. Government Initiatives
Of the several strategies and initiatives executed and implemented by the Government of India, the most prominent one is the National Investment and Infrastructure Fund (NIIF), aimed at increasing both international and Indian investments. The NIIF serves as a key module and medium for infrastructure development, offering investors opportunities to finance India’s extensive infrastructure projects, consequently contributing to substantial economic expansion.
Additionally, the Small Industries Development Bank of India (SIDBI) plays a decisive role in nurturing and supporting startups and small to medium-sized enterprises (SMEs) through Alternative Investment Funds (AIFs). SIDBI facilitates significant financial support to these businesses for innovation, scaling, and contributing crucially to the economy.
4. Regulatory Landscape
With reinforced supervision of the AIFs, the Securities and Exchange Board of India (SEBI) aims to strengthen management practices and prevent the mis-selling of investment products. One of the pivotal regulatory measures initiated by SEBI is the mandatory annual audit of Private Placement Memorandums (PPM). Warranting transparency and compliance with disclosure norms and guidelines, this step supplements investor confidence. These strict measures and regulations promote and boost a trustworthy environment for investment, attracting domestic and international investors.
Key Growth Drivers
Several key factors reflect the current scenarios and insights on the future direction of the market. Here are some of the key growth drivers:
1. Rise in PE/VC Investment Activities
Private Equity and Venture Capital investments in India witnessed a remarkable increase in the year 2022, growing to USD 77.1 billion, with a phenomenal 62% growth compared to the earlier years. This surge emphasizes the rising confidence of investors in the expanding startup ecosystem of India and its prospective potential for high returns.
Technology, e-commerce, and financial services stand out as dominant players among the many other sectors. The growth in the field of digital technologies, supported by changing consumer behavior, trends, and demands, has led to an increase in investments in technology and e-commerce firms. Investors are attracted to the sectors with high growth potential and stable competition to capitalize on the changing trends and disruptive innovations, increasing the momentum and movement in PE and VC investment activities in India.
2. High Growth Potential of Mutual Funds
In India, the estimated total of registered mutual fund investors reached around 1.88 crore in 2022, representing and highlighting a tremendous rise in investor participation and interest in mutual fund investments. With consistent and established returns, stretching the limits of investors with attractive and diverse portfolio diversification benefits, mutual funds have grown to be a popular and preferred investment sector among retail and institutional investors. Factors like increased investor demand for financial products, rising disposable incomes, growing awareness about investment opportunities, and the need for wealth creation and financial security have paved the way for this sharp and prompt growth of the mutual fund industry.
The Indian Asset Management Market has immense potential for growth as it is fueled and supported by dynamic investment trends and a strict and supportive regulatory system. With major players like ICICI, HDFC, and Aditya Birla dominating the market, India stands out as an attractive investment frontier, with diverse lucrative opportunities for local and global investors.
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