A Multi-layered Approach to Diversification
India’s affluent investors are crafting complex, multi-layered portfolios designed to navigate varying economic conditions. By diversifying across a spectrum of asset classes—equities, debt, real estate, cash, commodities, precious metals, and even niche assets like art—these investors aim to stabilize returns while reducing exposure to sector-specific or market-specific risks.
The strategy extends further within asset classes, especially equities, where investors diversify by market capitalization, sector, geography, and investment strategy. For instance, they might allocate capital to large-cap stocks for stability, while tapping mid-cap and small-cap stocks to capture growth potential. Similarly, sectoral investments span key areas like infrastructure, information technology, healthcare, energy, and banking, with broad exposure providing a safety net against downturns in any one sector or market, thereby enhancing the portfolio’s resilience.
The Rise of Equities Amid Diverse Portfolios
Equities dominate the portfolios of India’s wealthy, constituting approximately 39% of their total asset allocation, according to The Wealth Index by 360 ONE Wealth in collaboration with CRISIL. Despite already holding a significant portion in equities, the wealthy are inclined to increase their equity exposure further, spurred by the sector’s potential to generate returns above inflation. Equities provide a means to build wealth over the long term, with options ranging from growth stocks and value stocks to passive investments such as Exchange-Traded Funds (ETFs) and index funds. Further, the adoption of diverse equity strategies, including contrarian and momentum investing, reveals a dynamic approach to capturing market opportunities. The report also revealed that even the elderly are aggressive investors, with the main goal for respondents above the age of 60 years being not wealth preservation but capital appreciation, and they have a higher allocation to equities than other age groups.
Yet, within this equity-heavy structure, these investors balance their portfolios by holding substantial positions in debt and real estate, each making up around 20% of their allocations. Debt instruments, such as bonds and market-linked debentures, provide predictable returns and stability, offsetting the inherent volatility of equities. Real estate, with its potential for steady appreciation and income generation, remains an essential asset for those seeking tangible, long-term investments.
The report further indicates that gold remains a staple for wealth preservation among the affluent, occupying a modest but strategic 10% of the average portfolio. Historically viewed as a hedge against inflation and economic uncertainty, gold has maintained its appeal in times of fluctuating equity markets and inflationary pressures. Although returns on gold fluctuate year to year, its role as a defensive asset makes it a resilient component of a diversified portfolio.
Exploring New Horizons with Alternatives
Indian UHNWIs, with a strong appetite for alternative investments, are turning toward Alternative Investment Funds (AIFs), venture capital, and private equity to capture high-growth opportunities beyond traditional asset classes. Their portfolios increasingly include stakes in start-ups, often through angel investments, reflecting an eagerness to tap into India’s booming start-up ecosystem. This trend indicates a shift from established public markets to unlisted, high-potential sectors, where investors can take early positions in transformative ventures.
HNIs show a similar interest in real estate as a preferred alternative investment, finding in it a balance between growth potential and stability. The allure of private equity and start-up investments, however, is particularly pronounced among UHNWIs, who are keen on leveraging high-growth, long-term opportunities. This inclination towards alternative investments highlights the evolving asset allocation strategies that favor growth-oriented and innovation-driven sectors. However, while there is a growing familiarity with AIFs, the survey revealed that 77% of the wealthy require some kind of professional assistance from wealth advisors.
Trends and Shifts in Allocation
The allocation preferences of India’s wealthy reveal a strategic intent behind each asset class—equities offer inflation-beating returns and long-term growth, while debt provides stability and predictable income. Real estate is valued for its potential to generate rental income and appreciate over time, contributing to portfolio stability. Gold, with its hedging benefits, acts as a safeguard against inflation and market volatility.
Going ahead, the asset allocation patterns are likely to evolve further, with equities and alternative investments projected to receive more attention as UHNWIs continue seeking avenues that deliver above-market returns. Fixed-income instruments are also expected to see increased inflows, as UHNWIs look to mitigate risk and manage liquidity within extended holding periods. Cross-border investments are also becoming a focal point, as affluent Indians increasingly diversify into international equities, seeking valuable buffers against domestic market volatility. This diversified approach reflects an overarching objective to balance risk, capture growth, and safeguard wealth against economic uncertainties.
As India’s wealth management landscape grows, HNWIs and UHNWIs are likely to adopt increasingly sophisticated strategies that mirror both global trends and local economic realities. In a financial ecosystem marked by constant change, asset allocation remains the cornerstone of enduring wealth and prudent financial management.
