Anand Rathi Wealth Ltd Management Discussions

Global Industrial and Trade Dynamics Overview

The global industrial landscape has exhibited a slight uptick in production among the major economies, albeit with significant worlds most industrialised nations such as Germany and Japan, have experienced a decline in their industrial output. In contrast, several emerging market countries, including Russia, China, and Brazil, have shown notable increases in their industrial production capacities.

The consumer demand scenario, as mirrored by retail sales data, presents a mixed picture. Major European economies like Germany, France, and the United Kingdom have continued to experience contractionary demand trends. Conversely, consumer demand has remained robust in countries such as Russia, China, the United

States, and Japan. This suggests a divergent impact of economic policies and consumer confidence across different regions.

In terms of international trade, the year 2023 started with subdued activity, maintaining a contractionary mode for the majority of the year. However, recent months have marked a positive shift, with major economies reporting an uptick in both exports and imports. This resurgence in trade activity indicates a potential stabilisation and recovery in global market dynamics, driven by improved economic conditions and restored consumer and business confidence. As we advance, monitoring these trends will be crucial for businesses to strategically align their operations and investment decisions to capitalise on emerging opportunities in the evolving global economic environment.

Global Inflation Trends and Monetary Policy Responses

Throughout 2023, a notable decline in inflation was observed across many of the worlds major economies, continuing a trend from the previous year. However, recent data suggest a resurgence of inflationary pressures in certain regions, signalling potential shifts in economic stability.

The response from central banks has been mixed, influenced by a variety of economic factors. The general reduction in central bank hawkishness can be attributed to the significant the delayed effects of previous aggressive rate hikes on demand, and mounting recession fears in several advanced economies. Despite these conditions, the majority of central banks have hesitated to begin reducing policy rates. This caution stems from concerns that premature monetary easing might reignite inflationary pressures, especially given the persistent strength in labour markets. Monetary policy currently remains dynamic and varied across regions:

In Japan, policy tightening is proceeding gradually.

European central banks have initiated a phase of monetary easing.

Chinas central bank maintains an accommodative stance.

The U.S. Federal Reserve is taking a cautious approach, delaying the commencement of interest rate reductions.

This complex global monetary landscape underscores the delicate balance central banks are attempting to maintain between curbing inflation and supporting economic growth, with policies tailored to the unique challenges of their respective economies.

Trends in Global Banking and Currency Market

Following a period of contraction from the end of 2022 through 2023, there are emerging signs of recovery in bank credit across major economies. This revival, preceded by a prolonged downturn, is also accompanied by an acceleration in bank deposits, suggesting a strengthening of the financial systems of these countries.

In the currency markets, the U.S. dollar, which had appreciated against most major currencies until early 2023, saw a slight depreciation towards the end of the year. However, this trend has reversed in recent months, with the dollar experiencing notable gains. Over the past year, the dollar has significantly appreciated relative improvements in recent months. Thisto most of theworldsmajorcurrencies, with Mexico and the United Kingdom being exceptions to this trend.

Looking ahead, we anticipate the U.S. dollar will continue to strengthen. This forecast is based on current economic indicators and market trends, which suggest ongoing investor confidence in the stability and resilience of the US economy relative to its global counterparts.

Global Equity and Debt Market Dynamics

Over the past twelve months, the global equity markets have experienced a broad rally across most major countries, with notable exceptions like China. In advanced economies such as Italy, Japan, the United States, and Germany, the impact of this rally has been particularly pronounced, reflecting a significant uptick in market valuations despite mixed macroeconomic performances. Conversely, the equity returns in most emerging market countries have been less remarkable compared to their advanced counterparts, except for Brazil and India, where returns have been more robust.

This occurs even as the macroeconomic performance of these emerging markets generally surpasses that of advanced economies, highlighting a disconnect between economic fundamentals and market performance. The debt markets present a more complex scenario. In the United States, benchmark yields have risen substantially over the last year, signifying increasing rates and potentially higher borrowing costs. In contrast, Japan has experienced a more modest increase in yields. Meanwhile, major emerging markets like India have seen a decrease in yields, suggesting a different trajectory in investor expectations and government bond markets. European yields have remained relatively stable, reflecting ongoing economic policy measures and market sentiments in the region. This divergence between equity and debt market trends underscores the varied investor sentiments and economic outlooks across different global markets. Such dynamics emphasise the importance of nuanced understanding and strategic analysis for investors navigating these international financial landscapes.

THE GLOBAL OUTLOOK Sectoral and Economic Outlook

Despite a somewhat bleak outlook for the manufacturing sector across many major European countries, the Purchasing Managers Index (PMI) for manufacturing in other key global markets has shown encouraging signs of recovery. Notably, countries such as India, Indonesia, Brazil, Mexico, the United States, and China have demonstrated significant suggests a potential rebound in manufacturing activities, driven by robust domestic demand and improved business confidence.

In the services sector, the PMI indicators are more uniformly positive, portraying an optimistic scenario for near-term economic activities across the major economies, with the exception of France. This expansion in service activities indicates resilience and adaptability in consumer demand and business services, which continue to support overall economic momentum.

Looking ahead to 2024, the global economic outlook appears more subdued compared to 2023, although it is not without positive signs. Current projections suggest that while no major economy is expected to slip into a severe recession, a cautious approach remains prevalent.

Observers, particularly in the United States, anticipate a ‘soft landing scenario. This expectation is grounded in the belief that a moderate slowdown in growth, supported by accommodative fiscalpolicies and timely adjustments by central banks, will help avert a full-blown recession.

This cautious optimism underscores the importance of continued vigilance and strategic policy interventions to sustain economic stability and growth.

Global Equity Market Outlook

The outlook for global equity markets in 2024 is tentatively subdued, particularly within advanced economies. Several factors are expected to confine the markets largely to a consolidation phase for much of the year. Key among these are a slowdown in economic growth and inflation rates that are softening more than initially anticipated, which could delay the anticipated reductions in policy interest rates. Additionally, concerns about a slowdown in corporate earnings growth and perceptions of overstretched equity valuations are contributing to cautious investor sentiment.

The prevailing view among financial analysts suggests that a combination of slowing economic growth and significant yet measured reductions in policy rates might facilitate a ‘perfect landing. This scenario would ideally prevent any major corrections in the global equity markets. However, this outlook is contingent on several risk factors. Potential delays in initiating rate cuts, along with a stronger-than-expected deceleration in GDP growth and corporate earnings, could negatively influence market dynamics.

Further complicating the landscape are recent rises in bond yields within the U.S. market and escalating oil prices globally. Both factors are poised to exert additional downward pressure on equity markets worldwide, reflecting the interconnected nature of global financial systems and the sensitivity of equity markets to broader economic signals.

THE INDIAN ECONOMY Growth Trajectory

Since 2015, India has consistently emerged as one of the fastest-growing major economies. Despite a significant contraction due to the global pandemic, India has reclaimed its position as a leader in global growth rates. According to projections by the International Monetary Fund (IMF), India is expected to remain the fastest-growing major economy over the next five years, with an anticipated real growth rate of 6-7%.

External Sector Performance

Over the past year, Indias export of goods has faced challenges, largely due to slow growth in key trading partners, rising protectionism, and geopolitical tensions. However, recent months have indicated a tentative recovery. In contrast, Indias service exports have performed robustly, particularly in sectors like information technology and IT-enabled services, as well as consultancy. Furthermore, substantial private remittances from the Indian diaspora and the strength of the services sector have helped mitigate the impact of the goods trade deficit on the current account. Simultaneously, these factors have enabled the Reserve Bank of India to bolster its foreign exchange reserves, enhancing economic stability.

Inflation Dynamics

India has witnessed a substantial decline in inflation particularly in core inflation,which covers non-food and non-fuel items. Core inflation has fallen below the target set by the Reserve Bank of India (RBI), marking a significant of price pressures in these categories. However, overall retail inflation remains around 5%, still above the RBIs target. This persistently higher rate is largely driven by elevated food prices, which continue to exert upward pressure on the overall inflation figures.

Despite these challenges, there is optimism that the trend in retail inflation will continue to decline. Projections suggest that by the second half of 2024, retail inflation could approach the RBIs monetary policy target of 4%. This anticipated alignment with the target reflects expected improvements in food price stability and ongoing economic adjustments.

Monetary Policy Stance

The RBI has maintained the policy rate at its current level despite robust economic growth and relatively high retail inflation. This decision underscores the central banks cautious approach, balancing growth considerations with the need to manage inflation expectations. Given the current economic indicators, it appears unlikely that the RBI will initiate rate cuts in the near future. This stance is in contrast to trends in several European countries, where policy rate cuts have already commenced. Additionally, there is speculation that both the European Central Bank and the

Federal Reserve might start reducing their rates soon.

However, the RBIs reluctance to lower the policy rate reflects stability rather than reacting to transient fluctuations in inflation. This approach suggests that the RBI is prepared to maintain tighter monetary conditions to anchor inflation expectations, even as other major central banks may begin easing their policies.

Indias Equity Market Performance

Since the year 2000, India has consistently outshined other major global equity markets across all investment horizons, ranging from one to twenty years. Indian equities have offered the highest dollar returns for nearly all these periods, establishing India as a standout performer in the global equity landscape.

Equity Returns in Major Markets (%)

THE INDIAN ECONOMIC & MARKET OUTLOOK Continued Strong Growth

India has continued its trajectory of robust economic performance, having achieved an impressive growth rate of

7.6% in the fiscal year 2023-24. For the current fiscal year, projections remain optimistic, with an anticipated GDP growth rate close to 7%. This forecast positions India as one of the fastest-growing major economies globally, reflecting strong fundamental economic health.

Leading Performance Indicators

Indias economic outlook is bolstered by consistently high near-term indicators relative to other major countries. The Purchasing Managers Index (PMI) for both manufacturing and services sectors indicates sustained economic activity. These indices serve as key indicators of the overall economic health, with high readings suggesting expansion and underscoring Indias dynamic economic environment.

Investment and Consumption Trends

Despite expectations of a moderate slowdown in investment activities from their current elevated levels, there is optimism regarding a resurgence in private consumption, which could drive further economic growth. This anticipated shift may balance the slight deceleration in investment, supporting overall economic stability.

Post-Pandemic Recovery and Equity Market Valuation

The Indian equity market has undergone a significant in earnings since the Covid-19 pandemic, with current valuation levels approaching what is considered fair value. Despite a vigorous market rally, this recovery in earnings the current price levels, offering a balanced perspective for potential investors. The coherence between market performance and earnings growth not only boosts investor confidencebut also underscores the markets resilience and potential for sustained growth.

Prospective Foreign Portfolio Investment

Despite a less favourable global outlook for equities in the next twelve months, the Indian equity market is poised to continue attracting positive foreign portfolio flows. optimism is underpinned by several key factors:

Strong Economic Outlook: Indias economic projections remain robust compared to global peers.

Fair Valuation: Market valuations are deemed reasonable, avoiding the extremes of undervaluation or overvaluation.

Healthy Corporate Earnings: Corporate India continues to show strong earnings growth, enhancing its attractiveness to investors.

Domestic Investment Climate

In addition to foreign inflows, strong participation is expected from domestic retail and institutional investors, who are likely to continue their substantial contributions to the market. This domestic investment, coupled with favourable economic conditions, augments the positive outlook for the Indian equity market.

Bond Market Dynamics

The Indian bond market is poised for a favourable trajectory, underscored by a decline in the risk-free rate which directly impacts the discount rates applied to equities. This downward trend in bond yields, driven by robust fiscal management and monetary policy measures, bodes well for reducing the cost of borrowing and enhancing the attractiveness of debt instruments.

Implications for the Equity Market

A decrease in bond yields generally leads to a lower discount rate for valuing equities, which can enhance the present value of future cash flows investments. Consequently, as bond yields decrease, equity markets often benefit from the recalibrated risk and return, making equities more appealing to investors. variances in Given these financial dynamics, the outlook for the Indian equity market appears promising over the medium to long term. The supportive conditions in the bond market, combined with a healthy economic backdrop and solid corporate earnings growth, suggest a sustained period of robust performance for Indian equities. This scenario presents potential opportunities for investors looking to capitalise on the growth prospects within Indias financial markets.

THE GLOBAL WEALTH MANAGEMENT INDUSTRY Asset Valuation Trends

According to BCG, global financial assets were regional variance valued at approximately US$ 255 Trillion in 2022, with physical assets slightly surpassing this figure. By the end of 2023, financial assets are projected to reach US$ 280 Trillion, potentially exceeding the value of physical assets. This expected increase is largely attributed to exceptional performance in the equity markets throughout 2023, contributing significantly to asset value growth.

Geographic Disparities in Financial Wealth

The Organisation for Economic Co-operation and Development (OECD) reports that financial portfolios per capita are substantially larger in developed countries compared to developing nations. The United States leads with the highest market value of financial portfolios per person, followed by Canada, Australia, Japan, and the United Kingdom. Conversely, India registers the lowest per capita financial portfolio value among systemically important countries, a category that also includes Turkey, Brazil, Mexico, and Russia.

Savings and Investment Dynamics

The accumulated value of savings represents both the return on investments and reinvested earnings, reflecting the overall value of a persons financial portfolio. The annual savings rate, indicative of new additions to the portfolio, does not consistently correlate with per capita income levels across countries. Typically, emerging markets like China, Indonesia, Russia, and India exhibit higher average savings rates compared to developed countries such as

USA, the UK, and Italy. However, recent trends show a rise in savings rates in developed countries like Australia, Italy, and Japan, while some emerging markets, including South Africa, Mexico, India, and China have seen their savings forecasted from equity rates either stagnate or decline. of

Implications for Global Economic Strategies

These trends underline significant asset accumulation and savings behaviour across different global regions. Understanding these differences is crucial for policymakers and financial institutions aiming to foster economic stability and growth. For emerging markets, enhancing financial literacy and investment opportunities could help leverage high savings rates for better economic outcomes. Meanwhile, developed nations may need to consider policies that encourage sustainable savings and investment behaviours amid varying economic challenges.

Currency and Bank Deposits

In 2022, the allocation of financial assets towards currency Inand bank deposits displayed significant Asia, countries like Japan and South Korea, along with some European nations such as Russia and Germany, reported high proportions, with these assets constituting 40% to

50% of total financial assets. By contrast, major European countries like France, Italy, and the United Kingdom saw a slightly lower proportion, around 30%. In the Americas, including Brazil, Mexico, and the United States, the share of currency and bank deposits was markedly lower, ranging from 10 to 20%.

Equity Assets

Conversely, the proportion of equity assets was substantially higher in North and South America, with countries like USA, Brazil, and Mexico allocating 35% to 40% of their financial assets to equities. European countries such as France and Italy also maintained a significant share, around 30%, while the UK, Japan, and Germany had much lower proportions, about 10%.

Market-Based Securities and Mutual Funds

Market-based securities other than equities constituted less than 10% of total financial assets across all surveyed countries, with slightly higher allocations observed in North and South America. Mutual funds, meanwhile, accounted for 10% to 20% of financial assets in nations like USA, Canada, Brazil, Germany, and Italy, indicating a robust preference for pooled investment vehicles in these regions.

THE INDIAN WEALTH MANAGEMENT INDUSTRY

The robust savings culture in India supports a dynamic sector, with substantial funds available for investment in various financial instruments. This has important implications for wealth management, as there is a continuous need for services that can offer effective asset growth, management, and diversification strategies.

Growth Drivers for Indian Wealth Management Industry A) Low Penetration of Financial Assets

According to the OECD, the total financial portfolio of Indian households in 2022 was estimated to be around US$ 10 Trillion, accounting for less than 4% of the global total. This proportion mirrors Indias share of global GDP, illustrating a balanced representation in both economic output and financialasset accumulation.Beyondfinancial assets, the value of physical assets held by Indian households is at least equivalent, potentially doubling the total asset base to an estimated US$ 20 Trillion.

Financial Portfolio of Indian Households

Between 2012 and 2023, direct equities and mutual funds consistently accounted for only 10-13% of the financial portfolios, underscoring a cautious approach to more volatile investment options despite potentially higher returns.

This extensive pool of assets indicates a substantial market for wealth management services in India, estimated to be about fivetimeslargerthanthenations annual net increases in GDP. The size of the market, combined with Indias economic dynamics, presents significantopportunities for growth in the wealth management sector. Factors enhancing this potential include:

Economic Growth: India remains the fastest-growing major economy, a factor that continuously expansion in injects vitality into its financial markets and asset management industry.

Rising Per Capita Income: Despite a population growth rate below 1%, Indias per capita income growth rate is among the fastest globally, increasing the wealth accumulation rate among its citisens.

High Savings Rate: Indian households traditionally exhibit a high savings rate, contributing to significant assets. Although there has been a moderation in the savings rate over the past decade, it remains substantial by global standards, fuelling the capital available for investment.

B) Rapid Growth in Wealthy Populations its India is witnessing a significant population of High-Net-Worth Individuals (HNIs) and Ultra-High-Net-Worth Individuals (UHNIs). This surge is reflective of the broader economic prosperity and robust growth the country has experienced in recent years. Projections indicate that the HNI population will nearly double, exhibiting a Compound Annual Growth Rate (CAGR) of 15.7%, escalating from 7.98 Lakhs in 2022 to 16.57 Lakhs by 2027.

The burgeoning number of HNIs and UHNIs presents substantial opportunities for value creation in various sectors of the economy. The financial services sector, in particular, stands to gain as the demand for wealth management, investment advice, and financial planning services is expected to grow in tandem with increasing wealth.

C) Demographic Advantage

Supportive Business Environment: Indias economic landscape is increasingly favourable for business, bolstered by governmental policies that encourage entrepreneurship and innovation.

Skilled and Cost-Effective Labour: Access to a large pool of skilled yet cost-effective labour enhances Indias appeal as a hub for both startups and established businesses, driving wealth creation.

Youthful Demographic: With one of the youngest populations in the world, India benefits from dynamic, enterprising youths who are increasingly venturing into entrepreneurship, further boosting the countrys wealth spectrum.

D) Digital Advancements and Market Potential

The range of financial products available in India is relatively limited compared to the offerings in more developed markets. This limitation can be attributed to several factors that influence behaviours and preferences of Indian consumers, particularly those residing outside the major urban centres.

Despite these challenges, India presents substantial growth potential for the financial sector, driven by rapid digital advancements. The increasing accessibility of financial services through digital platforms is democratising finance,breaking down traditional barriers to entry for new investors. This shift is gradually altering perceptions and increasing the adoption of various financial products across different demographics.

E) Expanding Assets Under Management

As of March 2024, the Indian mutual fund industry has seen significant growth, with Assets Under Management (AUM) exceeding 55 Lakh Crores. This expansion reflects preferences among Indian investors, moving away from traditional bank deposits to more dynamic investment avenues.

Average Assets Managed (AUM) by the Indian Mutual Fund Industry

There has also been a significant increase in investor inflows into high-value capital market instruments. Alternative Investment Funds (AIFs) and Portfolio Management Services (PMS), which require minimum investments of 1 Crore and 50 Lakhs, respectively, have become increasingly popular. This trend indicates a growing sophistication and diversification in the investment strategies of Indian investors.

F) Role of Robo-Advisors

The rise of digitalisation has facilitated the emergence of robo-advisors automated platforms that use algorithms to provide wealth management guidance without human intervention. These systems democratise the investment process by making it accessible and cost-effective for a wider audience. Robo-advisors integrate scientific traditional investment wisdom, offering a balanced approach to personal finance and asset management. Advancements in financial technology are playing a notable shift in investment a crucial role in facilitating this shift. Tools that incorporate data analytics and machine learning can help wealth managers gain deeper insights into client behaviour, enhance risk assessment, and provide more accurate financial advice tailored to individual needs.

Moreover, these technologies can automate routine tasks, allowing advisors to focus more on strategic aspects of client relationships.

While technology has significantly transformed wealth management through the advent of robo-advisors, offering efficient and algorithm-based advice, it still lacks the personal touch that human advisors provide. Robo-advisors can process vast amounts of data to generate investment suggestions, but they may not fully grasp the subtleties of client emotions, preferences, and complex financial situations that require a personalised approach.

G) The Emergence of the Phygital Model

Human advisors bring a nuanced understanding that is crucial for tailoring financial advice to individual needs. Their ability to interpret non-verbal cues, empathise with clients life situations, and provide bespoke solutions cultivates deep trust and loyalty elements that are yet to be fully replicated by machines. Trust, in particular, remains a cornerstone of effective wealth management, built on personal interactions and the advisors consistent delivery of superior service and well-researched financial strategies In response to the ongoing demand for personalised service coupled with the efficiency of digital solutions, the ‘phygital model has emerged as a compelling innovation in wealth management. This model combines the best of physical (human) and digital (technology) interactions to create a seamless client experience. By integrating human expertise with digital tools, this approach aims to enhance service delivery while maintaining the personal touch that clients value.

The phygital model offers several advantages:

Enhanced Efficiency: It utilises technology to handle routine tasks and data analysis, allowing human advisors more time to focus on complex client needs and relationship building.

Scalability: Digital tools can help manage a larger number of clients without compromising the quality of advice, thus scaling the business effectively.

Cost-Effectiveness: Automating certain aspects of the service reduces operational costs, which can potentially be passed on to clients in the form of lower fees.

Personalised Experience: Maintaining human interaction ensures that the personalised nuances of wealth management are preserved, providing clients with tailored advice that technology alone cannot offer.

As the wealth management industry continues to evolve, the successful integration of digital capabilities with human insight will likely become more critical. Firms that can effectively implement a phygital strategy may not only enhance their service offerings but also differentiate themselves in a competitive market, striking the right balance between technological efficiency and the irreplaceable human touch.

OUTLOOK OF THE INDIAN WEALTH MANAGEMENT INDUSTRY

As India continues to register the fastest economic growth among major economies, its prospects for transitioning from a lower-middle-income to a high-income country by 2047 look increasingly feasible. This economic trajectory presents lucrative opportunities in wealth life events such management, especially for families with high incomes. The sector is poised to expand significantly, offering sophisticated financial services tailored to the needs of affluent clients. The wealth management sector in India is on the brinkof evolution a transformative phase. As more households increase their disposable incomes and become more investment-savvy, the demand for diverse financial products and wealth management services is likely to surge. This will create exciting opportunities for financial advisors, wealth management firms, and innovative solutions that cater to a more affluent and financially literate client base.

As investor preferences continue to evolve, wealth managers who adapt by offering goal-oriented and personalised financial planning are likely to thrive. The future of wealth management will increasingly rely on a combination of advanced technology and personalised service delivery to meet the growing demand for customised financial guidance. This alignment ensures that every investment decision supports the broader context of the clients life goals, enhancing both client satisfaction and loyalty.

A) Adaptation of Holistic Wealth Management Practices

Wealth managers are now tasked with crafting personalised financial plans that not only seek to optimise returns but also ensure that these returns support the clients specific life goals. This approach involves integrating various financial planning elements, including savings, investments, insurance, and tax strategies, to create a cohesive plan that supports achieving personal objectives efficiently. In response to these changing investor preferences, wealth managers are rethinking their strategies. The focus is expanding from merely growing financial assets to providing holistic that cater to individual goals. This shift requires a more detailed understanding of the clients personal aspirations, risk tolerance, and life stages. Modern investors are increasingly adopting a targeted approach to financial planning, which aligns investment strategies with specific personal and financial objectives. This trend marks a shift from traditional investment goals that primarily focussed on wealth maximisation. Todays investors have a broad spectrum of short-term and long-term goals, ranging from immediate purchases like the latest smartphone as or a holiday trip, to significant funding a childs education or planning for retirement.

B) Rising Financial Literacy and Investment in Financial

Assets in Recent years have witnessed a significant the Indian financial sector, driven by increased financial literacy and inclusive initiatives aimed at broadening financial awareness among the populace. These efforts have been bolstered by the rapid digitisation of financial services andsupportivechangesinregulatory opportunity for the expansion of the frameworks that encourage digital transactions. Consequently, there has been a notable shift in asset allocation preferences among Indian investors, particularly towards equity-related assets.

C) Growth in Equity Investment Vehicles

The robust performance of the Indian equity market, especially post-pandemic, has catalysed a substantial increase in equity investments. This is evidenced by the dramatic rise in the number of Demat accounts from 2.5 Crores in 2015 to 14.4 Crores in 2023 and a significant increase in equity mutual fund folios, which doubled from 2019 to 2024 to reach12Crores. amount of

These figures underscore a growing enthusiasm for equity investments among Indian investors. Despite these positive trends, the proportion of equity assets in the portfolios of Indian households remains relatively low accounting for 12-13% of financial of total assets. This suggests that there is substantial room for growth in equity investment, particularly as Indian institutions such as pension funds and insurance companies begin to increase their equity exposure. This shift is expected not only to align with global standards but also to enhance the overall returns of

Indian household portfolios. To truly capitalise on the potential of the mutual fund industry in India, concerted efforts are needed to enhance market penetration. This includes targeting untapped markets with tailored financial products and leveraging digital platforms to reach a wider audience efficiently.

D) Shift in Investment Preferences in Emerging Markets

As of December 2023, the top five cities Mumbai, Delhi, Bengaluru, Pune, and Kolkata accounted for about 53% of the Assets Under Management (AUM) of mutual funds in India. Notably, Mumbai and Delhi alone made up approximately 40% of the total AUM. This concentration play in highlights the significant the countrys investment landscape.

However, there is a shifting trend in investment preferences among retail investors, particularly noted in the B30 cities townsandcitiesthatareclassified adopt advanced technologies in a cost-beyond the top 30 urban areas by market potential. With rising income levels and the growth of an affluent middle class, there is a noticeable shift from the traditional preference for physical assets like real estate and gold to equities and other financial securities. This shift indicates a maturation of the market and presents a significant fund industry into these previously untapped areas.

E) Development of Distributor Networks

Developing a robust distributor segment is critical for expanding market reach, especially in underserved regions. Distributors play a crucial role in bridging the gap between mutual fund products and potential investors. Providing incentives to intermediaries to expand their networks will not only enhance market penetration but also improve financial literacy across the country. Despite the broader availability of services from large institutions, the mass affluent segment individuals who possess a significant but do not reach the highest echelons of wealth still predominantly rely on Independent Financial Advisors (IFAs) for mutual fund advice. IFAs continue to play a crucial role due to their personalised service and deep understanding of individual client needs, especially in a assetsand6% diverse market like India.

F) Enhancing Value through Technology

Digital wealth management involves leveraging cutting-edge technology to deliver superior value and professional service, enhancing the overall investment experience while ensuring objectivity. This approach includes sophisticated tools for portfolio management, financial planning, and client reporting, all designed to provide a more comprehensive and customised service offering.

Big data and advanced analytics are transforming the wealth management industry by enabling more personalisedclientengagement,enhancingrelationship management, and improving risk assessment capabilities. These technologies allowfirmsto analyse large volumes of data to uncover insights about client preferences, investment behaviour, and market trends, leading to more informed decision-making. For traditional wealth advisory firms, partnering with wealth tech providers represents a strategic opportunity toenhancetheirtechnologicalcapabilitiesandaccelerate digital transformation. These partnerships can help traditional firms effective manner, ensuring they remain competitive and relevant in a rapidly evolving industry. By integrating innovative tech solutions, wealth management firms can offer enriched client experiences and more efficient service delivery.

The affordability of data and the disruptive impact of technology have revolutionised the wealth management landscape. Todays investors demand platforms that not only provide user-friendly interfaces but also streamline complex investment processes into simple, intuitive interactions. This shift underscores the growing importance of digitalisation in wealth management, extending beyond basic digital transaction channels.

The combination of a growing economy, increasing wealth, and a high rate of savings places India in a strong position to expand its financial services sector, particularly in wealth management. As the population becomes increasingly affluent, there will be a greater need for sophisticated financial advisory services, portfolio management, retirement planning, and other related services that can help individuals and families optimise their wealth. The evolving landscape suggests a potential shift as newer generations may seek to diversify their investment strategies beyond traditional avenues. The wealth management sector is well-positioned to capitalise on this shift by educating clients about the benefits of diversified portfolios and by offering innovative products that align with a broader range of risk appetites. This could help enhance the overall returns of Indian households and better align them with inflation and growth objectives.

CORPORATE OVERVIEW OF ANAND RATHI WEALTH LIMITED

Company at a Glance

Established in 2002, Anand Rathi Wealth Limited (ARWL) began its operations as an AMFI-registered Mutual Fund Distributor. Over the years, we have evolved into a leading non-bank sponsored wealth solutions provider, catering predominantly to High-and Ultra-High-Net-Worth individuals (HNIs and UHNIs) in India. We extend our services internationally through a representative officein Dubai, addressing the unique needs of NRI clients. Our extensive network of Relationship Managers across all major Indian cities ensures personalised and objective-based financial solutions that align with our clients diverse financial goals.

Private Wealth Expertise

Our flagship Private Wealth (PW) vertical is pivotal in our service offering, managing assets worth 57,807 Crores as of March 31, 2024. This segment demonstrates our commitment to transparency and data-driven processes that deliver optimal financial solutions to clients. Our teams profound understanding of client needs, combined with rigorous research, enables us to appropriately assess risks and devise strategies that foster informed investment decisions.

Holistic Wealth Solutions

At ARWL, we do more than assist in wealth creation; we provide comprehensive wealth management services. This includes strategic tax planning and robust mechanisms to protect wealth against potential liabilities. We also offer estate planning services to ensure seamless wealth transfer with minimal transmission loss, thereby securing our clients legacies.

Client Relationships and Reach

As of the end of the fiscal year 2023-24, our PW vertical supports 9,911 active client families, managed by 332 dedicated Relationship Managers. Notably, 60% of our clients have been with us for over three years, comprising 79% of our total PW AUM. This statistic underscores the enduring trust and satisfaction of our clients with our services.

Geographical Footprint

ARWL boasts a strong presence in 17 strategic locations across India, including major cities such as Mumbai, Delhi, Bengaluru, and Hyderabad, among others. Additionally, our international outreach through the Dubai office caters to the global aspirations of our clients.

Market Insight and Client Acquisition

Our in-depth market research has identifiedan underserved yet lucrative segment within the HNI category individuals with a net worth between 5 Crores and 50 Crores. These clients prioritise quality and value over cost. Our expertise and standardised yet flexible approach allow us to effectively scale value over time. In the fiscalyear 2023-24 alone, we welcomed 1,559 net new family additions to our client base, reflecting our ongoing growth and commitment to excellence in wealth management.

ARWL VALUE PROPOSITION

Wealth Creation as a Continuous Process

At ARWL, we understand that true wealth creation is a continuous process that requires meticulous planning and execution. Our approach is built around a comprehensive understanding of our clients financial goals and ensuring that investments are consistently aligned with these objectives.

Core Objectives for HNIs

We cater to the unique aspirations of High-Net-Worth Individuals (HNIs) with a clear focus on:

• Risk and Return Objectives: Balancing risk and returns to meet specific financial goals

• Wealth Protection: Safeguarding wealth against market volatility and other financial risks.

• Wealth Transmission: Ensuring efficient wealth transfer and legacy planning through trusts and will creation.

Strategic Financial Journey

• Initial Consultation: Discussing various options to achieve the defined financial objectives.

• Asset and Product Allocation: Implementing strategies that reflect the clients desired asset distribution and product choices.

• Ongoing Oversight: Periodic monitoring and adjustment of the portfolio to ensure alignment with dynamic financial goals and market conditions.

Investment Strategy

Asset Allocation: Recognising asset allocation as a crucial decision that significantly impacts portfolio performance.

• Product Selection: Simplifying choices by selecting optimal financial instruments currently focussing on Equity Mutual Funds, Debt Mutual Funds, and Non-Principal Protected Structured Products (Non-PP SPs) to achieve uncomplicated yet effective returns.

• Equity Mutual Fund Selection: Choosing 14 equity mutual funds from a pool of 584 to target an alpha of

2-3% per annum over the NIFTY 50.

• Risk Management: Incorporating Non-PP SPs as a strategic element to mitigate risk.

• Additional Services: Offering trust formation and will creation to enhance value and address comprehensive wealth management needs.

Expanded Business Verticals

In addition to the Private Wealth (PW) segment, ARWL has broadened its service offerings through two additional verticals:

• Digital Wealth (DW): This segment focusses on integrating fintech innovations to provide wealth solutions to the mass affluent sector, employing a ‘phygital approach that combines the efficiency of digital tools with the personalised touch of human advisors.

• Omni Financial Advisor (OFA): OFA supports Mutual Fund Distributors (MFDs) with a robust technology platform that enables them to serve their clients more effectively and expand their operational capabilities.

COMPETITIVE STRENGTHS OF ANAND RATHI WEALTH LIMITED

Targeted Focus on the Fast-Growing HNI Segment

ARWL has strategically positioned itself within the affluent market segment, catering specifically to individuals with net worth ranging from 5 Crores to 50 Crores. Recognising that these clients demand high-quality, premium services, ARWL has refined its value proposition to meet these expectations through a standardised, research-driven approach. This focus allows ARWL to continually enhance its service offerings and maintain a competitive edge in the high-net-worth market.

Objective-Driven Investment Strategy

Our firm adopts a data-driven approach that simplifies investment decision-making for our clients. By focussing on a select mix of Mutual Funds and Non-PP Structured Products (SPs), we design investment solutions that are easy to understand and effective in achieving client goals. This strategy not only ensures liquidity but also minimises capital risk, thereby fostering long-term value creation for our clients.

Holistic Value-Added Services

Beyond traditional wealth management, ARWL offers comprehensive services that include estate planning, succession planning, and will creation. These value-added services are integral to protecting our clients wealth and ensuring smooth asset transitions, which solidifiesour long-term client relationships and enhances trust.

Experienced Leadership and Skilled Team

Guided by a leadership team with extensive expertise in the private wealth sector, ARWL emphasises a logical, data-driven approach to decision-making. Our Relationship Managers (RMs) and Account Managers (AMs) are distinguished by their academic and professional backgrounds and equipped to perform detailed financial analyses that cater to individual client needs.

Robust Network of Relationship Managers

ARWL places great emphasises on attracting and retaining top-tier Relationship Managers. With various initiatives designed to nurture and grow RM talents, ARWL has successfully maintained a high retention rate. Our RMs are seasoned professionals skilled in crafting tailored financial strategies that align with client risk profiles and financial goals.

Entrepreneurial Work Culture

ARWL promotes an entrepreneurial environment that encourages RMs to develop their own business strategies and collaborate without geographical limitations. This culture is supported by an uncapped incentive policy that motivates and rewards performance, fostering a dynamic and client-centric work atmosphere.

Innovative Hiring Practices

Our unique hiring strategy focusses on recruiting highly qualified Account Managers from top business schools who are either rank holders or cleared Chartered Accountancy attempt.in their Thisfirst practice ensures that our team is competent and well-prepared to transition into

Relationship Manager roles, providing continuous growth and development opportunities.

Advanced Digital Capabilities

Recognising the crucial role of technology in wealth management, ARWL has heavily invested in digital infrastructure. Our Digital Wealth (DW) solutions and the Omni Financial Advisor (OFA) platform offer state-of-the-art, mobile-first technologies that enhance the capabilities of Independent Financial Advisors (IFAs) and improve client engagement across the retail sector.

RISK MANAGEMENT AT ANAND RATHI WEALTH LIMITED Overview of Risk Landscape

As a prominent financial services firm, Anand Rathi Wealth Limited (ARWL) navigates a complex array of risks characteristic of the wealth management industry. These risks range from market and credit risks to operational and reputational challenges. Effective risk management is thus crucial not only for safeguarding client assets but also for ensuring the firms long-term operational integrity and success.

ARWL is committed to a proactive risk management approach that encompasses the following key components:

Risk Identification

• Systematic Identification: Regularly identifying potential risks that could affect the firms operations and client investments.

• Dynamic Assessment: Keeping abreast of new regulatory changes, market developments, and macroeconomic factors that might pose risks.

Risk Evaluation

• Impact Analysis: Evaluating the potential impact of identified risks on ARWLs operations, reputation, and clients assets.

• Probability Assessment: Determining the likelihood of various risk scenarios to prioritise management efforts.

Risk Mitigation

• Strategic Controls: Implementing strategic controls and measures to mitigate identified risks. This includes diversifying investments, employing stringent compliance checks, and enhancing cybersecurity measures.

• Continuous Monitoring: Regular monitoring of risk factors and the effectiveness of implemented controls to make necessary adjustments.

Client Asset Safeguarding

• Robust Safeguards: Establishing robust safeguards such as insurance and contingency funds to protect clients assets against unforeseen events.

• Transparency: Maintaining transparency with clients about potential risks and the steps being taken to mitigate them enhances trust and confidence.

Reputation Preservation

• Proactive Communication: Actively managing communications to handle reputational risks effectively. This involves clear, consistent, and honest communication with clients, stakeholders, and the public.

• Ethical Practices: Upholding high ethical standards and practices to prevent any reputational damage related to non-compliance or ethical breaches.

Opportunity Seizure

Risk-Based Opportunities: Leveraging risk assessments to seize market opportunities that align with the firms risk appetite and strategic objectives.

Innovation in Risk Management: Innovating in risk management processes to enhance efficiency and effectiveness, providing ARWL a competitive edge in the wealth management sector.

OTHER INITIATIVES AND ARRANGEMENTS AT ANAND RATHI WEALTH LIMITED

Robust Internal Management Controls

ARWL has established an independent internal management control department tailored to our

Companys scale and scope. This department is dedicated to evaluating the effectiveness of all internal controls and procedures, ensuring adherence to regulatory and legal standards, and reviewing findings from internal audits By incorporating domain experts, ARWL has significantly enhanced the capabilities of its internal audit function. The

Audit Committee of the Board of Directors consistently assesses the adequacy and effectiveness of internal controls and reviews audit outcomes, ensuring rigorous compliance and operational integrity.

Comprehensive ESG Framework

Recognising the critical importance of ESG considerations, ARWL has developed a robust framework to select companies aligned with its clients ethical standards and investment goals. This integration of ESG criteria into investment evaluations helps clients build diversified and sustainable portfolios, aiming for financial returns alongside positive societal and environmental impacts.

• Environment: ARWL prioritises investments in companies committed to sustainable practices such as reducing carbon emissions, enhancing energy efficiency, and preserving natural resources. Such companies are better positioned to comply with environmental regulations and mitigate associated risks.

• Social: The firm focusses on companies with strong social practices, including promoting diversity and inclusion, maintaining fair labour practices, and engaging in community development. These companies are often viewed as more ethical and responsible, enhancing their attractiveness to like-minded stakeholders.

• Governance: ARWL values firms governance practices, including board independence, transparent executive compensation, and robust risk management. These firms are deemed more reliable and less likely to engage in controversial activities, supporting stable financial performance.

Employee-Centric Practices

ARWL places immense value on its human resources, recognising employees as central to its success. The firm committed to fostering an enriching work environment that promotes growth and development. Continuous efforts to enhance the workplace atmosphere have earned ARWL the ‘Great Place to Work accolade, highlighting its commitment to a positive and productive culture.

Learning and Development

ARWL invests in regular training for its Relationship Managers and Account Managers, with around three hours of training sessions each week. This commitment to professional development ensures that employees are well-equipped to excel in their roles and progress within our Company. The successful transition of 100 AMs to RMs over the past three years exemplifies the effectiveness of this approach.

Entrepreneurial and Incentive-Driven Environment

The firm encourages an entrepreneurial spirit among employees, offering uncapped incentives and empowering Relationship Managers to innovate and expand client engagements without geographical boundaries. This policy nurtures ownership and drives engagement across all levels of the organisation.

Cautionary Statementswith exemplary Regarding Forward-Looking

Information

The Management Discussion and Analysis section contains forward-looking statements that involve risks and uncertainties. These include predictions about

ARWLs objectives, strategies, and expected performance. It is important to note that actual results may differ from these projections due to various factors such as increased competition, is economic conditions affecting market dynamics, changes in government regulations, tax laws, and other unforeseen challenges that could impact ARWLs operational and financial performance. As a prominent financial services firm, Anand Rathi Wealth Limited (ARWL) navigates a complex array of risks characteristic of the wealth management industry. These risks range from market and credit risks to operational and reputational challenges. Effective risk management is thus crucial not only for safeguarding client assets but also for ensuring the firms long-term operational integrity and success. ARWL is committed to a proactive risk management approach that encompasses the following key components.