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Indian Asset Management by Rishabh Keshiv Sehgal

This report will cover various types of asset classes present in India, and deep dive into India's Asset Management industry with a comparison against global markets.

ASSET CLASSES


Investment belongs to one or other asset classes there are various types of asset classes present in India. There seem to be a variety of characteristics that can be used to categorize asset classes. You can categories them based on their intended use, including whether they are consumption assets like oil and natural gas or investment assets like securities. You can also group them by geography or industry, such as domestic assets, overseas or global assets, or emerging and advanced markets. Few asset classes are:


  • Fixed income

  • Equity

  • Real estate

  • Commodities

  • Cash and cash equivalents

  • Derivatives

  • Alternative investments


Fixed Income


Fixed income asset class is the common asset class in our country as people have a lot of trust in this asset class. It is amongst the most ancient and respected asset classes. This asset class for instance includes Fixed deposits (FD) and Public provident funds (PPF). In this way the investor is allowing the bank to borrow money from the investor in exchange of capital protection and the bank agreed returns on the investment to the investor during a certain period of time. This is the most popular and common asset class as it includes zero percent risk though has less return. The investor gets steady returns on their investment in the due course of time. It also includes corporate and government bonds. Unlike equity market there are no cash flows involved in this asset class the amount of maturity is pre decided therefore having variation is profit or loss.


Equity


This asset class in India has recently gained its importance and popularity but still growing. This asset class is the mostly buying equities which means buying into a running business based on the number shares bought. This asset class is not as secure as the fixed income asset class rather lies on riskier side of the asset classes. When an investor buys a share of company the investor becomes the owner the respective percentage of the shares bought. Equity can be further categorized as small cap, mid cap, and large cap funds there are also multi cap funds and dividend yielding funds.


Real Estate


Real estate market is also a very old and popular asset class in India. Investor in India love to invest their savings in the real estate market. This asset class mainly focuses on plots, apartments, villas, commercial projects etc. However, the real estate market is not as risk free as the fixed income market it is somewhat unpredictable as it depends upon various factors around the country though it is the perfect way to park your savings with a long-term perspective.


Commodities


In this type of asset market, it ranges from goods that can be traded for instance Gold, silver, bronze, food crops, petroleum etc. This asset class is not meant for long term investment. The prices here vary with the law of supply and demand.


Cash and cash equivalents


This kind of asset class is also known as money market instruments. It is basically the idle money that is lying in the investors savings account. In this asset class the investor has transactional freedom as cash is lying idle in the savings account. This is mainly for investors who are scared to invest in the other asset classes. However, in the current scenario it cannot beat the inflation rate.


Derivatives


This type of financial asset has no value of its own. In this finance asset the price of the asset depends upon the underlying asset and there is high fluctuation. The underlying assets are usually equity shares, bonds etc.


Alternative Investments


This type of financial asset is not considered to be a part of the typical asset classes of stocks, bonds, debts etc. This type has a complex structure and various restricted rules. This kind of an asset is usually held by high net individuals as this asset class yields high profits. Hedge funds cryptocurrencies are a few examples of this asset class.



MARKET SIZE


The Indian consumer durables market is divided into urban and rural segments, and it is drawing international marketers. A big middle class, a relatively large affluent class, and a tiny poor class make up the sector. India is seen by multinational organizations as one of the primary markets from which future development would likely arise. A favorable population composition and rising disposable income would be the primary drivers of India's consumer market expansion.

There are a few markets such as :

  • Labor market

  • Money market

  • Commodity market

  • Capital market


Labor market: In India the labor market known for it being very cheap, the country also has English speaking highly qualified workers. These highly qualified workers in the country makes it the most attractive location for multi nationals to set up their offices .There are three segments in the labor market primary, secondary, territory.


Money market: India as country deals more with borrowing and lending of its funds. The money market of this country depends upon several factors


Commodity market: This market consists of exchange of goods comprising from wheat to silver and gold etc.


Capital market: In this market, it deals with the assets of the country. In this market all companies whether private or government can raise funds it is upon them the funds can be short term or long term. This market consists of the bond market and the capital market.


INDIAN MARKET GROWTH


  • India s current GDP at current is expected to be around 232.15 trillion.


  • Currently, while worldwide financial uncertainty clouds the picture, the World Bank predicts that India's GDP will rise by 7.4% in 2016–17, making it the world's fastest-growing big economy. In terms of growth potential, India also outperforms other rising markets. The country has a bright long-term future, thanks to a consuming class that is predicted to more than triple in size by 2025, to 89 million families.


  • Liberalization has opened up new possibilities. The issue for policymakers is to manage growth in such a way that it establishes a foundation for long-term economic performance. Despite significant progress, India's transition into a worldwide economic powerhouse has yet to properly benefit all of its residents. There is a huge unmet need for essential amenities like water and sanitation, energy, and health care, for example, and red tape makes doing business difficult. Many of these issues have been addressed by the government, and the rate of change could go up in the future years if some efforts gain traction.


  • Despite the fact that India's manufacturing sector lags behind China's, there will be significant chances to invest in value-adding enterprises and generate jobs. India's allure to potential investors will go beyond its low-cost labour: local manufacturers are creating competitive firms in order to tap into the enormous and rising domestic market. Further reforms and improvements in public infrastructure could make it simpler for all types of manufacturing enterprises, both foreign and Indian, to scale up and become more efficient.


  • India will gain from twelve powerful technologies that will assist to increase production, improve efficiency across major areas of the economy, and drastically alter the delivery of services such as education and healthcare. According to our analysis, these technologies could add $550 billion to $1 trillion in economic value per year by 2025, potentially creating millions of well-paying, productive jobs (including positions for people with a moderate level of formal education) and allowing millions of Indians to live comfortably.


  • Efforts by the public sector to address the five areas are now underway. India's ranking on the World Economic Forum's Global Competitiveness Report improved to 55 in 2015–16, up from 71 the year before. Officials are working to make the government more efficient by implementing technologies that can bypass typical infrastructural constraints. Aadhaar, the world's largest digital-identity programmed and a powerful platform for providing benefits directly to the needy, has now been registered by one billion Indian people.



INDIAN REGULATORY CONSIDERATIONS


According to the SEBI Act of 1992, SEBI is the primary regulator for all funds, asset management, and advising operations in India (SEBI Act).


However, it is important to note that foreign investment and exchange control are regulated by the central government and the Reserve Bank of India (RBI), India's central bank established under the RBI Act, 1934. While the SEBI, RBI, and central government realms are generally defined, if there is a cross-border element, a regulated entity's activities may be reviewed by numerous regulators.

An AIF, according to the AIF Regulations, is a privately pooled investment vehicle established in India that raises funds from investors and invests according to a defined investment philosophy for the benefit of its investors. The AIF Legislation do not apply to funds governed by the CIS Regulations, the MF Regulations, or any other Indian regulator-issued regulations. AIFs do not apply to the following items, among others:

Employee welfare/gratuity trusts, holding businesses, and family trusts


While domestic or foreign investors can invest in an AIF, each must commit a minimum of 10 million rupees, and an AIF must raise a minimum of 200 million rupees (with angel funds authorized to have a minimum corpus of 50 million rupees) in commitments from its investors before it can begin operations.


AIFs have been divided into three categories with the goal of separating investment criteria while also providing a framework for regulatory concessions, if any, that are or may be granted by the authorities:


Venture capital funds (including angel funds), 'SME' funds, social venture funds, and infrastructure funds are among the sub-categories of Category I AIF.

Category II AIF: This category contains funds that do not fall into either Category I or Category III and do not use leverage or borrowing for anything other than their day-to-day operations. This category usually includes private equity and debt funds.

Funds that use a variety of or complex trading methods and may use leverage, as well as listed focused funds, fall into this group.


In India, mutual funds must be incorporated as trusts. The MF Regulations outline the qualifying requirements as well as the rights and responsibilities of the sponsor, trustee, manager, and custodian, as well as the wording of the trust deed and management agreement. The MF Regulations also govern economics, such as dividend payment, redemptions, and valuation, and mandate fees, expenditures, and commissions payable to intermediaries, as well as mandate norms and caps.


Mutual funds primarily cater to retail investors by obtaining money from the public through the sale of units in their schemes (with a few exceptions for private placement for specific types of schemes). Because mutual funds are retail goods, they are heavily regulated, and the offer document must be detailed and include substantial disclosures.


The MF Regulations impose constraints on the manager's operation and governance, requiring at least 50% of its directors to be independent of the sponsor or trustee.


In addition to the general standards, specialized mutual fund strategies such as real estate and infrastructure debt have specific needs that must be met.


REITs and INVITs (iii)

REITs and INVITs both went into effect on the same day, with the same goals, and the rules have remained largely the same.


The units of the REIT or INVIT must be offered to the public via an offer document, which is scrutinized by SEBI. This paper usually contains a lot of information. REITs and INVITs are not allowed to invest in other REITs or INVITs.


Any scheme or arrangement in which investor contributions are pooled with the goal of making returns and the assets are managed on behalf of the investors is referred to as a CIS. In the 1990s, the CIS Regulations were enacted to prevent the rise of several unregulated private schemes. It is worth noting that the CIS regime has not been popular due to the associated constraints; there has only been one registration since 1999.


The IA Regulations aim to regulate organizations that provide clients with investment advice and safeguard investors from mis-selling.


In addition to the exemption for those only advising foreign customers, the IA Regulations exempt other regulated entities or those who provide advice incidental to their main activity from the necessity to get registration.


The IA Regulations provide capital adequacy guidelines and other eligibility criteria to protect retail investors, including qualification and certification requirements that require designated personnel to complete NISM (National Institute of Securities Market) examinations.


The Foreign Exchange Management Act of 1999, its subordinate regulations (the FEMA Regulations), and government and RBI circulars govern all foreign investment in India. Various aspects of foreign investment, such as entry methods, sectoral limits, and price rules, are governed by these regulations. The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (the NDI Rules) were notified by the government on October 17, 2019, and they replaced the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident Outside India) Regulations, 2017. Foreign investment in Indian AIFs is similarly governed by the NDI Rules.


Offshore funds seeking to invest primarily in the unlisted space may choose to register as an FVCI under the FVCI Regulations because FVCIs receive certain benefits not available to FDI investors, such as free entry and exit pricing, exemptions from certain lock-in and public offer requirements, and a wide range of permissible instruments, including debt. However, this is limited to ten sectors, and investments outside of these must be made through FDI or one of the other avenues mentioned above.


FVCIs, on the other hand, must meet specific investment criteria, including allocating at least 66.67 percent of their assets to unlisted equities or equity-linked securities. FVCIs are allowed to invest in both start-ups and established businesses.


INDIAN ASSET DISTRIBUTION SYSTEM


Indian asset distribution is varied into a lot of parts such as real estate , equities ,mutual funds etc. In the Indian market most of the people prefer to invest in the real estate market considering it to be a safe and a long term investment. The investors are moving towards the equities but at a very slow pace.


INDIAN ASSET MANAGEMENT CURRENT TRENDS


During the forecast period, the India Asset Management Market is anticipated to expand at a CAGR of roughly 14%. Out of the total assets in the business, the top 10 asset management companies (AMCs) in India own (AUM) worth INR24.46 trillion, or almost 80%. From INR23.59 trillion in November 2018 to INR26.94 trillion in November 2019, the assets handled by the Indian mutual fund industry have increased (based upon the average assets per month). The assets have increased by 14.21% since November 2018.


The industry's yield (Total Expense Ratio) on AUM is expected to decline over time because of rising AUM and regulatory efforts to reduce costs for customers. The argument for sustained rise in profitability is made, however, by AUM growth with a favorable mix and continuing attention to enhancing operational effectiveness. The asset management sector in India has seen tremendous change in recent years. Individual investors have increased significantly and now account for roughly 58 percent of the AUM. With approximately 45 percent of the AUM now compared to 23 percent five years ago, equity has become a more prominent asset class. Increased penetration across the B15 cities, which now account for a significant portion of this shift. The India Asset Management Market is anticipated to expand at a CAGR of roughly 14% over the anticipated time frame.


Out of the total assets in the sector, the top 10 asset management firms (AMCs) in India own (AUM) worth INR24.46 trillion, or over 80% of the market.


From INR23.59 trillion in November 2018 to INR26.94 trillion in November 2019, the assets handled by the Indian mutual fund industry have increased (based upon the average assets per month). The assets have increased by 14.21% since November 2018. The industry's yield (Total Expense Ratio) on AUM is expected to decline over time as a result of rising AUM and regulatory efforts to reduce costs for customers. The argument for sustained rise in profitability is made, however, by AUM growth with a favourable mix and continuing attention to enhancing operational effectiveness. The asset management sector in India has seen tremendous change in recent years. Individual investors have increased significantly and now account for roughly 58 percent of the AUM.


With approximately 45 percent of the AUM now compared to 23 percent five years ago, equity has become a more prominent asset class. This move has been significantly influenced by growing B15 city penetration, which now makes up about 25% of the AUM.


The year 2021 was challenging for fixed-income investors as excessive central bank liquidity pushed real rates even farther into negative territory. As global central banks normalise their monetary policies and rates and credit spreads tighten, we anticipate a recovery in the fixed-income market in 2022. In order to get ready for a change in the credit market cycle, forward-thinking investors are using Acuity Knowledge Partners' (Acuity) global fixed-income research capabilities. In 2021, developed-market equities have done better than emerging-market equities. The underperformance in developing markets was principally brought on by the underwhelming performance of Chinese equities as a result of the government's crackdown on internet businesses and the country's struggling real estate market. As Chinese equities provide a tempting opportunity in terms of valuation, we anticipate this tendency to change in the future. The limited research coverage and quality, high cost of a trained talent pool, and language barriers to coverage of these markets from international financial centres make investing in Chinese shares difficult for foreign investors. Acuity's on-the-ground research capabilities (more than 150 analysts in China) are used by international asset managers and investment banks to foster innovation and efficiency in their investment research operations and maintain a sustainable business model.


ASSET MARKET IN OTHER COUNTRIES


Remittances under the Reserve Bank of India's Liberated Remittance Scheme (LRS), which was launched in 2004, have risen steadily in India because of rising income and wealth. The amount being transferred has suddenly increased at an astonishing growth rate of about 80% year over year.


As opposed to capital account transactions, such as remittance for investments, which are the categories that predominate the composition of funds remitted, travel, education, and maintenance of close family. With the unrestricted flow of information about international markets in the modern era, investors have seen the potential for growth in other areas. Diversifying one's holdings geographically is now seen as a crucial component of creating a strong portfolio.


While investing in international markets may be a novel financial strategy for most, one shouldn't stray from the fundamentals. A portfolio needs to be planned out while keeping in mind the standard factors like the industry. When it comes to international investing, the majority of Indian investors tend to favour equities. Over the past two decades, we have witnessed the domestic mutual fund market change as it developed into the favoured method for equities investors, particularly for retail and wealthy investors.


We think passively managed exchange traded funds (ETFs) are a more effective strategy to invest in stocks when it comes to global investments. This route is very well-liked, especially when it comes to. When it comes to international investing, the majority of Indian investors tend to favour equities. Over the past two decades, we have witnessed the domestic mutual fund market change as it developed into the favoured method for equities investors, particularly for retail and wealthy investors.


We think passively managed exchange traded funds (ETFs) are a more effective strategy to invest in stocks when it comes to global investments. This route is very well-liked, especially when it comes to.


COMPARISON WITH GLOBAL MARKETS


As the Sensex hit 59,000 for the first time on Thursday, India surpassed France to take over as the sixth largest stock market in the world. The equity market capitalization of the nation increased to $3.44 trillion, surpassing France's $3.39 trillion, which represents the total market value of all listed firms. India's market capitalization first surpassed $3 trillion in May. Indian shares have soared as retail money has poured in, especially given the lack of other high-yielding investment opportunities, while many markets have been hammered by the Delta variant's spread and worries about the US Fed slowing down asset purchases. In terms of performance among the top 15 largest markets in 2021, India is the best. Since January 1, FPIs have invested approximately Rs 59,000 cr in Indian shares, while DIIs have invested Rs 22,600.


The fascinating thing about US stocks is that since so many businesses have operations across the world but are listed there, you have exposure to both the US and the rest of the world. The many benefits offered by investment prospects in the US market are highlighted by Viram Shah, co-founder and CEO of Vested Finance, in this statement.


Equities plummeted together globally as a result of the current coronavirus pandemic, with declines of between 20 and 30 percent. Investment diversification would have been advantageous and effective at this time. The S&P 500 had already made up all of its losses brought on by the coronavirus by June 8th, 2020. Meanwhile, the Sensex was still down 17%. The currency you use for trading and investing can have a big impact on your portfolio, both positively and negatively. When it comes to investing in US markets, they are crucial.


Consider the Indian Rupee, which has consistently lost value in comparison to the US Dollar. This is a significant disadvantage because all investments made in Indian markets are made in INR, which causes their value to decrease over time. The dollar has gained 6 percent against the rupee only this year.


The American Dollar is one of the main benefits of investing in US markets. Your investments grow in value along with it, even if your portfolio as a whole does not.

The US markets continue to be home to all major firms that are leading their fields with new services while the Indian startup environment has been thriving. Since Indian law requires three years of continuous profits before a firm can go public, investors in India are unable to participate in growth stories at home. Most Indian investors are effectively barred from taking advantage of the chance to demonstrate their belief in novel business models because the story of many companies is one of postponed earnings for growth and market share. The US, however, has relatively flexible restrictions, making it possible for investors from throughout the world to follow the development of numerous creative models. Uber, Amazon, Tesla, and Facebook are just a few It is true that participating in two markets would necessitate consideration of two economic systems as well as numerous other external factors that affect these markets. This task may seem overwhelming and time-consuming to the ordinary investor. Some people might perceive declining returns in this endeavour and be willing to forsake the chance of greater riches in favour of putting forth less effort. By using ETFs to invest in US markets, which reduce risk through diversification, this issue may be allayed. However, for the typical investor, Indian markets still hold a little advantage in this area. Yes, the US and Indian markets each have advantages. But it's simple to understand how US markets show more promise in a contemporary investing environment with access to the global market. This is partly a result of their personality and love for other countries, as well as the fact that some of the most promising businesses in the world are based there. There is no doubt that the Indian market should continue to make up a sizeable portion of an investor's portfolio, but the US also makes a compelling case for inclusion in the portfolio of Indian investors. There has been a huge interest in investing in US equities due to the increase in retail investors wishing to participate in the stock market.

The numerous stock markets around the world are examined in this article. Additionally, we look at a few crucial aspects to take into account before making an investment on the global stock market. But sadly for investors, they had to deal with a number of restrictions that are built into the stock market. The Indian stock markets have developed to become not only one of the largest but also one of the most sophisticated markets in the world as a result of numerous scams.


The National Stock Exchange (NSE) and the Bombay Stock Exchange are the two principal stock exchanges in India (BSE). But these stock exchanges have started operating internationally.


The Indian stock market is regarded as an emerging market and is popular among investors due to its potential to present promising growth possibilities. For a variety of factors, including maturity, low volatility, and returns, other stock markets around the world can be favoured. Most inexperienced investors diversify their stock portfolios among asset classes, market capitalizations, and industries.


However, fortunately, in 2021, investors can diversify between nations, providing them access to various stock markets. The main motivation for diversifying one's investments across markets and nations has been to safeguard one's portfolio from hazards unique to one's own country as well as other regional calamities.


Markets in India might be negatively impacted by changes to the political and economic landscape. Investors are shielded from these dangers by spreading their money across other markets. The currency and its corresponding exchange rates are another aspect to consider while investing in global markets.


It is no secret that the value of the Indian rupee relative to the US dollar has been steadily declining for many years. To benefit from the profits earned as the Indian rupee declines, it would make sense to invest in American money. But by stepping it up a notch and purchasing US stocks, investors can gain even more from this approach.

As a result, you can benefit from dividends, the growth of your assets through American enterprises, and the strengthening of the US dollar. Today, we have access to a wide range of goods and services because to globalisation. When it comes to equities, this is also obvious. One can go ahead and purchase stock in the company from India instead of just drinking Coke and Pepsi.


Investors have access to global juggernauts on the US market, which makes certain Indian market leaders resemble midcap equities. However, this is not just applicable to blue-chip stocks. Before being permitted to list on the stock market in India, entrepreneurs must first demonstrate proof of three years of profitability due to the regulatory climate there. Comparatively speaking to their international counterparts, Indian marketplaces are recognised to have stricter laws and restrictions. In the US, these rules are more permissive, enabling investors to follow the development of an inventive firm. A lot of research must be done before making the decision to invest or not. Indian investors have access to a wealth of research and are familiar with the market's operations and trends.


Investing in international markets increases the amount of study necessary, and investors must adjust to other markets. Investors now need to study several economies.

On the other hand, traders must also adjust to the timings. As a result, investing in the global stock market requires much more research and work. Every stock market in the world has its own advantages and disadvantages, as well as investors, when it comes to investing. Before making an investment in a foreign market, investors must take these factors into account.


You can invest in US equities using a variety of apps, like Groww, Vested, etc. Before entering the global stock market, we hope this essay has given you a better understanding.