Business Today

Of bold investors and multi-asset-class products

Once full convertibility is in place and the 2011 Tax Code ends the distinction between domestic and global products, there is likely to be greater demand for global investment products.

Harshendu Bindal | Print Edition: January 24, 2010

Adecade ago, a majority of the Indian middle class was wary of equity investments and was predominantly exposed to traditional savings avenues such as bank deposits and small savings. Helped by a buoyant economy and markets, today investors have a relatively higher allocation to marketlinked instruments such as equities and other asset classes such as private equity, commodities, foreign markets, etc. Also, technology has played a key role, with access to investments becoming easier through online and mobile facilities. A typical investor today has more investment options than he ever had in the past.

India is expected to remain one of the fastestgrowing economies and as it is integrated further with the global economy, we should witness trends similar to that of the developed markets. Some key trends that we are likely to witness as we move towards 2020 are:

Demographics: With a young workforce and higher income levels, risk appetite is expected to increase towards asset classes such as equity, commodities, private equity, alternatives and niche categories.An increase in urbanisation should also boost demand for and access to financial products. a shift away from low-yielding bank deposits.

Global exposure: Once full convertibility is in place and the 2011 Tax Code ends the distinction between domestic and global products, there is likely to be greater demand for global investment products. This, along with moderation of returns from Indian markets to historical levels, will lead to an increasing realisation of the advantages of a globally diversified portfolio across all asset classes and the ability to use currency derivatives.

Technology: With increasing use of technology, customised portfolios are expected to become more popular as the cost of implementing such strategies becomes less and the scenario-building capability improves. We are likely to witness increased number of multimanager and multi-asset-class products.

Reforms: Infrastructure and real estate may become more accessible to investors through the fund route, as new regulations are put in place. Also, pension reforms should give investors better control over retirement funds.

Passive investing: While the demand for exchange traded funds (ETFs) has grown globally, in India active management continues to outperform passive style over the long term and is likely to remain so. We are likely to witness the advent of actively-managed ETFs, which could combine the benefits of both worlds.

While we have witnessed increased correlation between asset classes due to the excess global liquidity, this is likely to revert as the global economy recoups and the structural imbalances correct. Given the high savings rates and economic growth, we can expect increased exposure to professional investment managers and a shift away from traditional savings avenues. India is a large and diverse country leading to varying needs for different investors across the geographic and income spectrum.

One can't ignore the need for financial inclusion, given that today many Indians do not have access to even basic financial services and the penetration levels of banking/financial services remain very low. In that sense, we are likely to witness different trends in terms of financial investments.

The writer is the President, Franklin Templeton Investments (India)

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