IIFL Wealth Management Ltd Management Discussions.

The Financial Year 2019-20 (FY20) has been an eventful year for the global economy. Trade tensions between US and China, geopolitical worries in the Middle East and uncertainty around the United Kingdoms exit from the European Union, stand out among many other key developments. However, nothing could have prepared us for what was coming next. In mere weeks starting from February 2020, the onset of the Covid-19 pandemic turned the world upside down, touching every facet of society from national economies and global trade to our daily lives. Most asset classes around the world fell sharply in March 2020 and witnessed substantial increase in volatility. Oil prices fell to unprecedented levels due to severe demand destruction and disagreements between OPEC and Russia on production cuts. To contain the outbreak, many economies implemented substantially long partial or complete shutdowns, which are continuing, causing severe disruptions in the global and local economies. To counter balance the situation, unprecedented government action and massive fiscal and monetary stimulus have been announced around the world to stem emergencies and prevent negative fallouts from these imposed lockdowns. This has resulted in abundant supply of liquidity, supporting asset prices and keeping interest rates low. However, the longer-term impact of these measures on society and individuals remains hard to predict.

In view of the above developments, International Monetary Fund (IMF) revised down its global GDP growth forecast for Calendar Year (CY) 2020 to -4.9% from +3.3%. It expects the growth rate to bounce back to 5.4% in CY2021 owing to a low base and forecasted normalisation of economic activity. However, there remains extreme uncertainty around the timing and speed of this global recovery forecast. The economic fallout and any subsequent recovery depend on multiple factors, such as the intensity and efficacy of containment efforts, the possibility of another wave of pandemic, the time frame required for an effective vaccine, the extent of supply and demand disruptions, shifts in spending patterns, consumer behavioural changes, confidence effects, and volatile commodity prices.

india macro environment

While India was one of the fastest growing major economies in the world growing at 6.1% in FY 19, hiding behind this number was a story of a progressive decline - with GDP growth slowing down to 3.1% by Q4 of FY 20 and 4.2% for the year. This was due to a fall in aggregate demand and rising unemployment, partly caused by a slowdown in credit off take because of issues in the NBFC sector, which suffered from reduced funding options after the IL & FS implosion.

However, the recessionary trends witnessed in FY20 have significantly worsened in the first FY21, with the Covid-19 pandemic outbreak. To stall the transmission of the virus, India declared a centrally-imposed national lockdown towards the end of March 2020, which continues in some parts of the country. While the lockdown gave the health infrastructure some breathing space, it predictably had a severe impact on the economy, with many automotive and real estate companies recording zero sales in April 2020 for the first time in their history.

It also created a massive humanitarian crisis among temporary, migrant labourers who were suddenly left without a source of livelihood in the cities, and hence, had to return to their homes in the countryside.quarter of Both the Reserve Bank of India (RBI) and the

Government have taken concerted efforts to reduce the impact of the Covid-19 crisis. The RBI reduced key rates including Repo rate to 4%, Reverse Repo to 3.35% and (Cash Reserve Ratio) CRR to 3%. It also unveiled an unprecedented Moratorium policy on loans given by banks and NBFCs applicable to the period April to August 2020. Further, the government arranged for a fiscal stimulus that includes loan guarantees for NBFCs, provision of cheap credit to NBFCs, and Micro, small and medium enterprises (MSME), and increased the thresholds for classifying companies as MSME.

The government also announced significant in the agricultural marketing sphere, freeing farmers from the obligation to sell to Agricultural Produce Marketing Committees (APMC markets) and increased allocation to the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) to cater to the exodus of workers.

The RBIs monetary measures, along with benign inflationary expectations should keep interest rates low in the short term. However, Indias credit rating downgrade (Moodys Ratings reduced Indias rating from Baa2 to Baa3, retaining its negative outlook on the economy), higher retail food inflation and larger government borrowing to pay for the fiscal stimulus, may act as countervailing factors. The governments fiscal deficit is estimated to increase FY20 to 7% in FY21.

In an otherwise difficult economic environment, the external sector offers a silver lining. While FY20 was a good year, with the current account deficit narrowing, FY21 is expected to be even better. This will be largely driven by improvement in trade deficit due to the sharp correction in oil prices and decline in imports of discretionary items. This will also be partially offset by a decline in exports and reduced remittances from NRIs. On an overall basis, however, in FY21 it is possible that Indias current account might turn into surplus after 16 years. Foreign exchange reserves have recently crossed the US$500 billion mark, which gives India a healthy uncertainty,war chest to withrideCovid-19through the presenting economica storm. This stimulus and some of the pent-up consumption expected after the lockdown is lifted should help revive the economy to some extent. However, the timing and speed of any recovery remains difficult to forecast. Covid-19 cases continue to rise in India with the industry battling both a slowdown in demand and a shortage of unskilled and semi-skilled labourers. IMF forecasts Indias 2020 GDP growth rate to be - 4.5% before rebounding to 6% in 2021. In the Ease of Doing Business rankings published by the World Bank, India jumped 23 places to 77th rank in 2018, and a further 14 places to 63rd rank among 190 nations. The long-term growth drivers, however, are intact and growth is most likely to normalise by FY22 onwards driven by favourable demographics, low interest rates, infrastructure spending and key government reforms. Growth would also be supported by the likely shift of some global manufacturing from China to India. Shift in manufacturing from China was already taking place since last few years driven by rising wages and environment compliance costs. This is likely to accelerate as disruption in the supply chain due to Covid-19 has highlighted the risk of overdependence on a single country. This should benefit India as factors like concessionary corporate tax rate of 15% for new manufacturing units, skilled population, relatively low wages, abundant natural resources, improving ease of doing business and a large domestic market, should work in its favour.

industry overview

The global economy has entered into a period of significant dramatically changed reality. The full economic impact of Covid-19 on the wealth management industry is yet to show, and while wealth management remains an attractive industry, forecasts, business models and growth assumptions must be revisited, and we must prepare for challenging revenue outlook in the near term. The total wealth of the world is estimated to be approximately US$360.6 trillion in 2019 and is expected to be approximately US$460 trillion by 2024 at CAGR of just under 5.0% pa, according to Credit Suisse Global Wealth Report 2019. The world currently has an estimated 47 million millionaires who make up just 0.9% of the total world population but account for a staggering 44% or US$158 trillion of the total global wealth. As per the findings of the Credit Suisse Global Wealth Report 2019, the count of millionaires is expected to grow to 63 million by 2024 and their wealth is expected to grow to over US$ 200 trillion by 2024.

Of the total global High Net Worth Individual (HNI) wealth of US$158 trillion, it is estimated that financial assets comprise between US$74 to US$79 trillion. A global study by Capgemini on the HNI financial wealth shows that overall HNI wealth clocked a Compounded Annual Growth Rate (CAGR) of 6.7% from 2012 to 2018. In 2019, the growth rate accelerated to 8.6% with North America having the highest growth at 11% while Asia Pacific grew at 7.9%.

However, in 2020 global HNI financial wealth is expected to degrow by 3% to 4% and return to growth only from FY21 onwards. It is projected to grow to US$101 trillion by FY24, but it is expected that growth will shift from developed markets to emerging markets. While HNI wealth grew 7 percent annually in developed markets in the five years prior to Covid-19, it is expected to grow at 3-4 percent annually from FY19-24.

A deep dive into the banding of these 47 million millionaires reveals that only 19.6 million or 42% of the total global millionaires have financial wealth of more than US$1 million.

If we look at a country-specific view, almost 62% of the global HNWI Population with financial assets in excess of US$ 1 million reside in 4 countries. India stands at 263,000 millionaires in 2019 up from 256,000 in 2018.


Global wealth is projected to rise by 27% over the next e years, reaching US$459 trillion by 2024, according fiv to Credit Suisses Global Wealth Report 2019. Low- and middle-income countries will account for 38% of the growth, although they account for just 31% of the current wealth. Growth by middle-income countries will be the primary driver of global trends. The number of millionaires will also grow markedly over the next e years to reach almost 63 million. fiv


The Indian economy has experienced a difficult year with GDP growth touching a decadal low of 4.2% in FY20. Economic growth was trending down even before the outbreak of the pandemic, primarily driven by slowdown in personal consumption and weak investment activity.

The total individual wealth in India in FY19 stands at just over US$6 trillion (Rs.430 trillion) which has grown from US$4 trillion (Rs.280 trillion) in FY15 at a CAGR of just over 11%. Of the total individual wealth, financial assets comprise 61% or approximately US$3.6 trillion. Financial assets comprised 57% of the total wealth in FY15 reflecting a steady increase in the wealth allocation to financial assets.

Total individual wealth is expected to increase to approximately US$11.5 trillion (Rs.800 trillion converted at current exchange rates) by FY24 at a CAGR of 13% and financial assets are expected to grow to US$7.6 trillion at a CAGR of 15%.

On a long-term basis, it has been observed that wealth in India has grown, on average, faster than the overall GDP growth. China is the other prime example of such a scenario. In India, it is expected that GDP growth will return post FY21 and individual wealth, therefore, is expected to follow the same faster trajectory of growth in the longer term.


Of the total US$6 trillion of individual wealth in India, total HNI wealth is approximately US$2.86 trillion or 46%, which is broadly in line with the global average of 44%. The split of financial assets to physical assets is 61% to 39%, which amounts to approximately US$1.74 trillion in financial assets and US$ 1.11 trillion in physical assets.

Of the estimated financial assets, the assets under management by the top 25 wealth managers in the country as per the latest Asian Private Banker report is US$240 billion, which is just about 14% of the estimated financial assets. The remaining 86% of the financial assets is still unpenetrated and continues to be outside the purview of professional wealth mangers.

From an asset allocation perspective, Indian wealth allocation towards equities at 19% is still under the global average of 26%. A large part of Indian wealth is still stored as real estate and gold, which as the financialization of wealth continues, will move into financial equity and debt assets and fuel the growth of professionally managed wealth.

Asset class ndia Global
Equity 18.89% 25.70%
Debt 41.51% 45.50%
Alternate Asset Class 22.27% 13.00%
Real Estate 17.33% 15.80%


Equity Markets

The long term returns of large caps and small / mid-caps have largely converged, primarily on account of the sharp underperformance of small and mid-caps over the last two years. Although, the S&P BSE SENSEX / NIFTY 50 ended FY20 with negative returns, it still outperformed mid-cap and small-cap indices. In FY20, the overall growth expansion was subdued in agriculture, manufacturing and commercial vehicles sector. Performance of major sector indices was negative for the year with metals, auto, capital goods and banking underperforming significantly.

All major global indices, namely, S&P, FTSE, DAX, Nikkei, Shanghai, delivered negative returns but most of them outperformed the NIFTY 50. Notably, while India has underperformed in FY20, it has outperformed most of the other markets over a 10-year period.

March 2020 witnessed large FPI selling. FPI flows for FY20 were positive at US$ 1.3 billion (FY19: US$ 0.1 billion). Inflows into domestic equity-oriented mutual funds moderated to US$9.5 billion, compared to previous year (US$17 billion).

The global pandemic, adverse global macro-economic factors, sharp rise in crude oil prices, higher than expected Non-Performing Assets (NPAs) post the moratorium, are key risks for equities in the near term. A focused budget on stimulating demand, improved government spending mechanisms with an idea to tackle the pandemic impact, appear to be factors, which would drive the equity market in FY21.

Debt Markets

With a view to cushion the economic impact, most global central banks have reduced policy rates significantly. US Fed reduced the target fed fund rate by 150 bps (in addition to 75 bps rate cut in 9M FY20) and brought it down to near zero in March 2020. US Fed and ECB also restarted their Quantitative Easing (QE) program to support liquidity Indias GDP also touched a decadal low of 4.2% in FY19-20. Owing to liquidity challenges faced by many NBFCs there was a significantly reduced access to debt, especially for lower income households.

During the year, G-sec yields moved lower as the credit markets faced a challenging time. The yield on 10-year benchmark G-sec moved lower from 7.35% to 6.14%, down ~121 bps. The yield curve depicted a steep fall during the year, with difference between Repo rate and the 10-year benchmark G-sec yield increasing from 110 bps (FY19) to 174 bps in FY20. This was driven by 185 bps rate cuts by RBI (additional40bpsinfirsttwo months of FY21), ample system liquidity, slowdown in growth and decline in global yields.

From a future outlook perspective, subdued oil prices, lower global rates, ample liquidity, and a relatively weak outlook on overall growth and sentiment, point towards a continuation of the low yields especially at the shorter end of the yield curve.

Overall, it has been a tough 12 months in the credit market. Recent events such families in as those of the UHNI / HNI Tier-1 bonds write down of Yes Bank, winding up of 6 Franklin Templeton schemes and all of this amidst a nationwide lockdown, have impacted market sentiments. RBI has announced a host of measures to improve liquidity and ensure credit policy to keep the rates untouched was a step in the same direction.



IIFL Wealth Management Ltd. (IIFL Wealth) is one of the leading wealth management companies in India. From a humble start 12 years ago, IIFL Wealth has catapulted itself to become financial advisors to over 5,300+ influential segment, with more than Rs.1.6 trillion of assets under management. Headquartered in Mumbai, IIFL Wealth Management has more than 900 employees and a presence in 6 major global financial hubs and 25 locations to all segments. in India.The recentIIFL Wealth is the only pure wealth management company to get listed on the Indian stock exchanges with a market cap of almost Rs.10,000 Crs on the day of listing in September 2019. IIFL Wealth Management Ltd is listed on the NSE (Symbol: IIFL WAM) and BSE (Scrip code: 542772).

Areas of Business:

The two key areas of business are Wealth management and Asset management.

Wealth management

business is an open architecture advisory-based offering with the objective of wealth preservation while providing optimal returns relative to the clients risk appetite. While Indian firms have significantly gained market share, most existing players in India offer wealth management as a non-core extension to their core business (banking/ broking/ investment banking). IIFL Wealth on the other hand, is a pure play wealth management firm with a deep focus on managing UHNI wealth.

This focus has enabled us to offer full-fledged services including an evolving advisory platform, building allied services like estate planning, broking and corporate advisory. Having an in-house asset management company and NBFC also allows us to offer customised solutions for our clients.

Clients benefit from professional and unbiased advice, a scientific investment process, consolidated reporting across advisors, and cutting-edge portfolio analytics. For all clients, we have an Investment Policy Statement and follow an investment process mandate along with well-defined goals. We maintain a healthy balance between Fixed Income, Equity and Alternatives Investments thereby keeping returns consistent and not too volatile during turbulent times. This approach has ensured our clients portfolio grows in a compounded manner over long periods of time. Our unique approach in wealth management has resulted in high retention of clients and assets. The company continues to invest in people, products, technology and compliance to give clients the best platform to preserve and grow wealth.

Asset Management business

mainly comprises management of pooled funds under various structures such as alternative investment funds, portfolio management services and mutual funds and is primarily focussed on the alternatives space with five main strategies where we have a dominating presence which include Private Equity, Public Equity, Structured Credit and Real Estate.

Our differentiated position which focusses on the alternates space complements our wealth business by manufacturing products specifically tailored for the UHNI segment. Our clients include global and domestic institutions, private banks, family offices, and pension funds.


Key focus areas are

People / Platform: Regular additions to the product platform by adding key people have helped maintain market leadership in the alternative assets segment.

Process: Focussed on institutionalizing processes across functions (investments, operations, product management & coverage).

Distribution: Enhanced coverage, adding distribution partners / channel partners, focussing efforts on higher penetration across existing clients.



1) Entrepreneurs and Business Owners

- Corporate and Estate Advisory services needed

- Strength of platform allows a variety of offerings

- Lending solutions offer an integrated platform

2) Professionals

- Product innovations help in making smarter investments

- Process-oriented approach attracts professionals

- Strong technology backing to improve client experience

3) Non-Resident Indians (NRIs)

- Understanding of issues across multiple jurisdictions

- Platform strength allows a variety of offerings

- Estate Advisory services for NRIs


We are a company where owners work, and workers own. This ownership culture along with alignment of interests of employees, clients and shareholders has been the cornerstone of our success. Our clients are backed by an experienced team, who help them achieve their financial objectives. We have attracted the right set of people with relevant work experience.

People remain the core focus of our business and people development continues to be of importance. Transparent processes, an evolved performance plan and skill development clubbed with employee ownership ensures a high retention of employees, with attrition especially at the senior banker level being amongst the lowest in the industry. This has resulted in a virtuous cycle where client retention is ~99% and average AUM per client increases dramatically as the client vintage increases.


Our success with our clients, employees and shareholders can be attributed to our core philosophy of ‘Advisory Practice, Alignment of Interests and Ownership Mindset. The team at IIFL Wealth has often led and set new industry trends through innovative offerings and we recognized that alignment of interest of clients, employees and stake holders is truly possible only when we operate on a fiduciary model instead of the traditional transactional model. However, the industry as a whole is yet to transition to a fiduciary servicing mode.

Most Ultra High Net Worth Individuals (UHNIs) and High Net Worth Individuals (HNIs) invest to grow the real value of their investments. While they are cash and asset rich, HNIs are time poor and require e core tenets. These are: fiv external advisors to help them manage their fortunes and preserve their wealth. HNIs stand out for their superior knowledge and exposure to financial products and investments due to which their involvement in the decision-making process is also higher. This is a reflection of their high level of engagement with their portfolios and their expectations on transparency and performance over just product selection. Despite their reluctance to hand over responsibility for managing their wealth, UHNIs have begun to recognize that a devolvement of power is necessary for them to receive the level of professional help they desire.

What is therefore clear is that one size does not fit all, especially when it comes to financial objectives and risk-taking capability. Each client has a unique goal and risk appetite in mind and the investment mandate must therefore be set accordingly. Further the wealthier the client, the more mindful they are of how much of their money will be charged as fees. In our experience, one of the biggest challenges for a UHNI client is to decipher the opacity of total expense ratio including asset management fee and wealth manager fee/brokerage and get to the actual net of fees alpha generated by the advisor. These factors and our stated strategic agenda to evolve into a predictable, revenue-led, asset under management-driven organization, different from an industry dominated by product promotion and distribution led us to introduce IIFL-One our flagship offering, in the beginning of 2019. IIFL-One has gained tremendous positive client feedback and industry appreciation during the year with assets doubling to more than Rs.17,000 Crs by the year end.


IIFL-One is an aggregation of our product expertise and services, including strength of platform, portfolio management approach, focus on process, unique privileges, transparent pricing and combines all our learnings across the client life cycle. Through this initiative, we aim to redefine client engagement for wealth management in India.

The engagement model is a differentiator and founded on

Simple by Design

At IIFL-ONE we believe portfolios should be simple. This ensures that rebalancing of these portfolios, as indicated by our proprietary models, is easily achievable. Successful portfolios ensure that complexity is minimised ensuring better tracking of instruments as well. Our model portfolios define a simple combination of direct stocks, ETFs, direct bonds and open-ended mutual funds.

Focus on Asset Allocation

Global studies have indicated that 94% of the returns of long term portfolios are a function of asset allocation1.

Core asset allocation for any investor is identified from the tenure of the capital as well as the risk tolerance of the investor. At IIFL-ONE, we have built a robust model that guides our asset allocation decisions. This model will help add alpha as against a passive asset allocation approach.


A core tenet of IIFL-ONE is the focus on the process as opposed to subjectivity in decision making. Allocation is reset in a timely manner to maintain constant weights for each asset class. Market cap allocations are statistically computed to determine the optimal large & mid-cap allocations. Instrument & fund manager selection is a critical factor to ensuring appropriate product fitment. Various control factors are put in place to ensure portfolio governance in order to minimize risk.

Expert Team

The fund management team comes with strong multi-asset experience of dealing with long term portfolios across multiple cycles. The team is supported by asset class experts who research every investment idea before it is added to the carefully curated model portfolios.


Controlling costs of the portfolios is an important facet of IIFL-ONE. The all-in-cost model gives the investor complete clarity on the total cost of the portfolio. This approach ensures stability in total costs besides creating savings for the client.


Covid-19 Response

The global spread of Covid-19 has deeply affected our lives and challenged our traditional ways of doing business. Our focus has therefore been to ensure the safety and security of all our employees and seamless business continuity for all our clients while continuing to drive the implementation of our strategic agenda. Utilizing our rapidly expanding range of digital channels to full capacity, we stayed close to our clients, providing guidance, support and innovative solutions Since March 2020

- All employees are working from the safety of their homes. We have successfully implemented all our Business Continuity Plans and enhanced our technology infrastructure enabling seamless connectivity. Employee engagement and interactions have been ramped up via weekly webinars with senior management with a focus on extensive communication.

- Engagements with clients have been intensified through multiple outreach channels established with dedicated solution and servicing desks, supported by Relationship Managers and Research teams. We also hosted marquee global industry stalwarts for client-centric webinars.

- Advisors interact with clients over extensive video conference calls simulating face-to-face meetings allowing them to share client portfolios and analytics apps in a secured environment.

- As part of our Corporate Social Responsibility, we have made the following contributions: a. Rs.2.00 Crs to PM Cares Fund, (besides IIFL contributing Rs.3.00 Crs) b. Rs.25.00 lakhs to United Way, an NGO actively involved in assisting frontline health care workers by training and up-skilling as well as providing preventive kits percentage of Indias wealthy are relatively c. Rs.25.00 lakhs to Swasti, an NGO actively involved in working with Hospitals and assisting them in upgrading infrastructure and helping procure and provide PPE kits d. We have partnered with Give India in their India Covid Relief Fund, an open platform where individuals and organizations can come together to respond to this crisis.

Mr. Karan Bhagat is part of the steering committee. Any impact on the business due to Covid-19-related economic slowdown, changes in client sentiment and investment behaviour are unknown as yet. From a liquidity perspective, IIFL Wealth continues to be well-capitalized and insulated from any shocks in the domestic debt markets.


IIFL Wealth Finance Limited (wholly-owned subsidiary of IIFL Wealth Management Limited ‘IIFL Wealth) completed the acquisition of 100% of the paid- up share capital of L&T Capital Markets Limited (LTCM) on 24 April 2020. Accordingly, with effect from 24 April 2020, LTCM has become a wholly-owned subsidiary of IIFL Wealth. The said acquisition was made for Rs.2.30 billion plus cash and cash equivalent of LTCM.


IIFL Wealth won 20 awards during the year and 109 awards since inception. At the 2020 Euromoney Private Banking and Wealth Management Survey, it was a clean sweep as IIFL Wealth won all 16 awards including Best Private Banking Services Overall - India.

The other awards of repute bagged during the year include:

Outstanding Wealth Management Technology

Initiative-Front End at the Private Banker

International Awards 2019

Special Jury Award for Outstanding Contribution to Wealth Management at AIWMI Awards 2019

Best Wealth Management App at AIWMI Awards 2019

Best Private Bank, India, at the Asset Asian Awards2019, Triple A


Technology has emerged as a key differentiator in the wealth management industry. This was before Covid-19. In the aftermath, technology has now become central to the entire business model with digital engagements increasing 7x to 10x during the pandemic. Previously, the greatest technology was in optimization of processes, increase in productivity and reporting. Now technology plays a pivotal role in the actual delivery of the platform to the client. In 2019, we did an in-depth study of the wealth management landscape in India, which revealed that a significant young, with wealth creation happening at a younger age. Therefore, a company that can adapt to rapid technological changes will clearly have an edge. We remain at the forefront of providing new technology solutions to our clients. IIFL Wealth digital platform includes an enhanced website and a mobile App on IOS and Android platform, which allows clients to access all their portfolio statements on the go. We also introduced video statements, which gives clients a voice and video summary of their portfolio in a visually pleasing format along with a fund managers view.

Our acquisition of Altiore in 2018 has added data and analytics-driven insights to our service range and marked the beginning of a fintech-led transformation.

During the year, we introduced Insights for clients - an Analytics package integrated into the IIFL Wealth reporting tool. It provides deep dive analytics on client portfolios, allowing relationship managers to get enhanced information on portfolio performance, portfolio risk measurement, ratios and Investment Policy Statement compliance to name a few. Insights provides up to-date daily access to portfolio analytics to all our relationship managers, Investment Committees, service managers and fund management teams. Its reach is the first of its kind in India given the fact that access is to thousands of families updated daily across portfolios with range of investments. The analytics platform offers internal users views on the portfolio, which are not available to their peers or counter parts on similar scale or size of industry. It helps improve our reach to our clients, supporting our RMs with better MIS and data to study portfolios and make decisions accordingly.


Class Apart is our Knowledge series where we bring exclusive classroom sessions with globally renowned professors / programs. We conducted a session with Harvard Business School professor, Boris Groysberg.

In another such engagement, we took 70 clients to a 4-day curated program at Singularity University, California.


The Indian Fixed Income market started to come under stress since September 2018. Post the default of a large Indian lending institution, we had anticipated the stress in the system and released a note ‘A Shift to Quality, which advised our investors to reduce exposure to lower rated credit and move monies to higher quality and shorter duration credit bonds and funds. This call played out well as a spate of defaults took place over the next few months.


1. At the start of 2019, we saw that the yields of perpetual bonds of the top-rated PSU & Private banks in the country had spiked and were at very attractive yields. We used this opportunity to create an attractive structure product with its coupon pay-out linked to the performance of AT1 perpetual bonds issued by top banks.

2. The second quarter of CY2019 saw the listing of ‘Embassy REIT, which was Indias firstCommercial REIT. This REIT was co-sponsored by Blackstone and its debt was rated AAA. However, since it was a new structure, many regulated entities did not have approval to invest in the debt of REITs. The industrys lack of understanding of REITs also led to higher spreads being available. In May 2019, we utilized this anomaly to offer NCDs of Embassy Office Park REIT at an attractive yield of 9.25%, which was at substantial spread to existing AAA papers.

3. June 2019 saw a lot of volatility in Government bonds as the market was waiting for a revised budget from the newly elected government.

There was a lot of scepticism on the fiscal deficit

This led to an interesting opportunity in the G-sec market where there was a spread available between 5-year G-sec and MIBOR hedged to a fixed rate for 5 years. We took advantage of this spread and launched a unique structured product offering, which aimed at generating enhanced debt returns over a period of 5 years by building an in-built 8x exposure to 5-year G-sec. The product aimed to generate a pre-tax return of 10.10% over the entire duration.

4. In July 2019, we had launched Market-Linked

Debentures (MLDs) issued by Indigrid, Indias first power sector investment trust established to own interstate transmission assets in India. The industry was wary of Infrastructure investment trusts (InvITs) and had limited understanding of the asset class. Again, there was a regulatory arbitrage available since regulated entities were not allowed to buy debt of InvITs. The product offered an attractive yield of 9% with rating of CRISIL AAA/ Stable.

5. We also took tactical calls in mutual funds to exploit market inefficiencies. For instance, towards the end of 2019, we had noticed the term spread between 3-year and 10-year AAA papers was at its highest level during the past 9 years. During this time, while the longer maturity securities stayed put, the rally in the short-term securities led to widening of term spread.

The term spread (10-3 years) for AAA-rated PSUs stood at 124 bps. The maximum term spread in the last 10-years was 154 bps (average 0.23 bps)

The term spread (10-3 years) for AAA-rated Corporate stood at 112 bps. The maximum term spread in the last 10-years was 158 bps (average 0.21 bps) To exploit this opportunity, we advised investors to consider investing in long term maturity rolldown funds which offered a favourable risk reward ratio.

As the credit crisis progressed in the country, there were more entities that went bankrupt. The risk aversion created illiquidity and wide spreads for lower rated papers. Indian NBFCs found it difficult to raise money and any money raised went in repaying past loans. Fresh disbursals from NBFCs stalled and the entities dependent on it like promoter entities and real estate companies were completely starved of capital. This gave us an opportunity to cherry pick deals from the market where there was adequate liquid collateral but high yields due to the ongoing risk aversion.


The following were the key regulatory changes during the year:

a) Portfolio Management Services

Securities and Exchange Board of India (SEBI) on January 20, 2020 issued Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020 (SEBI PMS Regulations 2020) and repealed the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993. Following were the key amendments:

All new clients on boarded must invest Rs.50 Lakhs or more in any Scheme.

No upfront fees can be charged by the portfolio manager from the clients;

Discretionary schemes can invest only in securities listed or traded on a recognized stock exchange, money market instruments, units of Mutual Funds or any other securities as specified by Board from time to time Non-Discretionary / Advisory schemes may further invest or provide advice for investment of up to 25% of the assets under management in unlisted securities, in addition to the securities permitted for discretionary portfolio management.

Portfolio Managers may invest in units of Mutual Funds only through direct plan and shall not leverage the portfolio of its clients for investment in derivatives.

Since we had moved our commission structures to a full trail model proactively from the beginning of FY20 only, the changes in the regulations have had no adverse impact on our business.

b) Investment Advisory

SEBI on July 03, 2020 amended the Securities & Exchange Board of India (Investment Advisors) Regulations 2013 which shall come into force from 1st October 2020. Key changes proposed are as follows:

The Investment Advisor shall have client level segregation at group level for investment advisory and distribution services. The same client cannot be offered both advisory and distribution services within the group of Investment Advisor.

A client can either be an advisory client where no distributor consideration is received at the group level or distribution services client where no advisory fee is collected from the client at the group level.


IIFL Wealth and Asset Management is one of the largest wealth and asset management firms in India.

Founded in 2008, IIFL Wealth has grown steadily and now manages assets more than Rs.1.60 trillion, as on March 31, 2020. We operate offices spread out 31 across the world and have an employee strength of more than 900 employees.

Assets Under Management & Profitability

The table below provides a break-up of our Assets Under Management for the periods indicated:

(All figures in Rs.Crs)

Particulars 2019-20 2018-19 YoY Growth %
Annual Recurring Revenue Earning Assets 62,595 58,270 7.4%
Discretionary PMS / Non-Discretionary PMS / Advisory 17,720 8,714 103.4%
Funds Managed by IIFL AMC 21,940 20,773 5.6%
Third Party Managed funds 19,399 23,985 -19.1%
Loan Book 3,536 4,798 -26.3%
Transactional Assets 94,302 97,220 -3.0%
Direct Equity 22,008 27,575 -19.9%
Debt & Structured Products 25,562 15,812 61.7%
Third Party Managed funds Direct Code 21,316 22,787 -6.5%
Third Party Managed funds on which upfront commissions have been earned in previous years 25,337 31,045 -18.4%
Total Assets 1,55,490 156,897 0.91%
Less: Double counted Assets 18,106 18,889
Net Assets 1,38,792 1,36,601 1.6%
Add: Custody Assets 31,145 21,243
Total Net Assets including Custody 167,746 160,034 -4.60%

The table below is a Reclassified Consolidated Statement of Profit and Loss for the periods indicated.

(All figures inRs.Crs)

Particulars 2019-20 2018-19 YoY Growth %
Gross Revenue from Operations 1,527 1,579 -3.4%
Less: Direct Costs (676) (510)
Net Revenue 851 1067 -20.23%
Add: Other Income (69) 44
Net Operating Revenue 920 1023 -10.1%
Classified into:
Annual Recurring Revenues 535 444 20.5%
Management Fees on D/ ND PMS 35 15 139.9%
Management Fees on Funds Managed by IIFL AMC 146 80 82.3%
Annuity / Trail commissions earned on Third Party Managed funds 119 127 -5.7%
Net Interest Margin on Loans 234 222 5.2%
Transactional Revenues 385 579 -33.5%
Brokerage on Equity 36 38 -6.1%
Brokerage on Debt & Structured Products 139 143 -2.9%
Other Brokerage Syndications 211 39 434.8%
Upfront commissions on Third Party Managed Mutual Funds 0 250
Upfront commissions on Third Party Managed AIF / PMS 0 62
Carry Income / Other One time Incomes 0 47
Expenses 564 530 6.6%
Employee Costs 385 337 14.2%
Fixed Costs 300 307 -2.3%
Variable Costs 63 30 110.1%
ESOP Costs 22 0
Administration & Other Expenses 180 193 -6.8%
Operating Profit Before Tax 356 493 -27.9%
Add: Other Income -69 44
Profit before tax 286 537 -46.7%
Tax 85 163
Profit for the year 201 374 -46.26%
Other comprehensive income 5 10
Total comprehensive Income for the year 206 384 -46.2%
Cost to Operating Income Ratio % 61% 52%
ROE 7% 16%
ROE Ex Goodwill & Intangibles % 8% 17%
Debt to Equity Ratio
For the year ended March 31, 2020 For the year ended March 31, 2019
Segments Wealth Management Asset Management Total Wealth Management Asset Management Total
Gross Revenues 1,325 202 1,527 1,401 178 1,579
Net Operating Revenue 774 146 930 896 127 1023
Operating Profit before Tax 331 25 356 469 25 493

The key factors to consider are as follows:

1. Net Revenue from Operations declined 10.1% YoY to Rs.920 Crs primarily due to the shift made in our revenue model wherein we moved all distribution commissions earned from Third Party manufacturers to Annuity / Trail mode in FY20. This is contrasted against the erstwhile upfront model followed in FY19 and earlier where the entire commission receivable over the life of an investment made by a client was received and booked as income on the date of the transaction. This meant that for the remainder of the investment period, we received no income from those assets under management. Part of this change was mandated by SEBI through its circular in Sept ‘18 stating that all distribution commission on mutual funds will be paid only to all distributors in trail mode only from Oct ‘18 onwards.

For Alternative Investment Funds/ Portfolio Management Services (AIF/PMS), there was no such regulatory requirement, but with effect from 1st April 2019, we suo moto moved all commissions receivable to trail mode. Subsequently, in January 2020, SEBI has mandated that all distribution commissions on PMS investments must also move to trail mode, but since we had already made this change in FY20 this will have no impact on us in FY21.

2. Focus on Annual Recurring Assets & Revenues during the year has resulted in an increase in Annual Recurring Revenues (ARR) assets by 7.4% to Rs.62,595 Crs and the revenues increasing by 20% YoY to Rs.535 Crs for the year. This is despite a fall in Mutual Fund commissions as a result of SEBI MF amendment dated 13th December, 2018 effective from April 01, 2019, mandating Total Expense Ratio (TER) reductions in Mutual funds schemes; the direct impact of which was borne by distributors with commission structures being reduced by manufacturers to compensate for reduced TERs.

3. Our specific focus on growing the IIFL-One offering has been well received by clients with AUM increasing by 103% YoY to Rs.17,720 Crs and revenues increasing 140% YoY to Rs.35 Crs.

4. Overall Net flows during the year were Rs.12,434 Crs under the tough economic conditions experienced during the year.

5. On the cost side, we have continued to focus on rationalizing costs downward and increasing productivity. In FY20, fixed employee costs have reduced by 2.3% YoY, the overall increase in total employee costs is primarily due to higher one time variable and ESOP costs. Administration costs have also decreased by 6.8% YoY to Rs.180 Crs. We are confident of further rationalization in these costs in FY21.

6. Operating Profits before Tax have reduced 27.9%YoY to Rs.356 Crs primarily due to the drop in Net Revenues as explained earlier.

7. Other Income, which is primarily our earnings on our proprietary holdings in schemes manufactured or distributed by us is a loss for Rs.69 Crs for the year driven primarily by Mark to market (MTM) movements in March 2020 due to the Covid-19 crisis. This along with the fall in net revenues explained earlier has resulted in Profit after Tax declining 46.2% to Rs.206 Crs for the year.


(All figures inRs.Crs)

ASSETS As at 31-Mar-20 As at 31-Mar-19
1 Financial Assets 12,253 9,165
(a) Cash and cash equivalents 1028 165
(b) Bank Balance other than (a) above 151 113
(c) Derivative financial instruments 132 96
(d) Receivables
(I) Trade Receivables 242 296
(II) Other Receivables 118 424
(e) Loans 3632 4966
(f) Investments 6512 3053
(g) Other Financial assets 439 52
2 Non-Financial Assets 766 615
(a) Inventories 0 20
(b) Current tax assets (Net) 72 27
(c) Deferred tax Assets (Net) 5 17
(d) Investment Property 0 0
ASSETS As at 31-Mar-20 As at 31-Mar-19
(e) Property, Plant and Equipment 299 62
(f) Capital work-in-progress 1 173
(g) Intangible assets under development 0 0
(h) Goodwill 188 188
(i) Other Intangible assets 88 87
Right to Use assets 34 41
Other non-financial assets 80 0
Total Assets 13,019 9,780
LIABILITIES AND EQUITY As at 31-Mar-20 As at 31-Mar-19
1 Financial Liabilities 9,938 6,778
(a) Derivative financial instruments 249 252
(b) Payables 304 136
(c) Debt Securities 5193 3978
(d) Borrowings (Other than Debt Securities) 2850 1566
(e) Subordinated Liabilities 562 570
(f) Other financial liabilities 744 276
(g) Finance Lease Obligation 35
2 Non-Financial Liabilities 90 92
(a) Current tax liabilities (Net) 16 29
(b) Provisions 9 9
(c) Deferred tax liabilities (Net) 32 28
(d) Other non-financial liabilities 32 26
3 Equity 2,992 2,910
(a) Equity Share capital 17 17
(b) Other Equity 2974 2893
(c) Non-controlling interest 0 0
Total Liabilities and Equity 13,019 9,780

Key Considerations as on March 2020:

1. Investments & Borrowings linked to structured borrowings stood at Rs.4,417 Crs.

2. Liquid Investments stood at Rs.1241 Crs.

3. Investments of Proprietary funds in AIF / PMS stood at Rs.781 Crs.

4. Consolidated Net worth stood at Rs.2,992 Crs Vs Rs.2,910 Crs in FY19. Net worth Ex-Goodwill and intangibles stood at Rs.2,716 Crs Vs Rs.2,635 Crs in FY19 and average Net worth Ex- Goodwill and intangibles stood at Rs.2,675 Crs Vs Rs.2,242 Crs in FY19

5. ROE Ex-Goodwill & Intangibles has declined to 8% from 17% YoY primarily driven by the reduction in PAT YoY as discussed earlier and due to the increase in Average Net worth ex Good will and intangibles in FY20

6. Debt/Equity ratio increased from 2.36 on March

31, 2019 to 3.35 on March 31, 2020, primarily due to the increase in aggregate outstanding borrowings as at March 31, 2020 of Rs.1003 Crs vs. Rs.687 Crs as at March 31, 2019, an increase of 46%.

7. Debtors turnover ratio moved from 6.31 in FY19 to 5.59 in FY20, due to reduced revenue from operations and an increase in average trade receivables during the year

8. During the year we have declared a total interim dividend of Rs.20/- per equity share with face value Rs.2/- each.


The global economy has entered a period of significant uncertainty: assets have re-priced, interest rates have dropped, and market volatility has increased. Given the very nature of the pandemic crisis, an external shock pushing the global real economy into severe recession it would be prudent to think long term and refrain from short-sighted actions. The overall business direction therefore remains unaltered which includes sharpening our client value proposition and accelerating our investments in people and technology. We will continue to invest in our people, processes and technology to provide a platform that offers our clients products that deliver steady performance with adequate risk management, and superlative services..

Indias economic output remains vulnerable to multiple challenges and geopolitical risks in the short run. However, as enunciated earlier in the section on macro-economic overview, our fundamentals remain strong (benign inflation, Current Account Deficit and fiscal deficits in control, healthy foreign exchange reserves) and given our demographic dividend of a young population with a higher proportion of working age citizens, a vibrant start-up environment and the governments focus on improving the ease of doing business and helping Micro, Small & Medium Enterprises (MSMEs) that employ a major portion of Indias workforce, we are optimistic about India remaining a place where there will be opportunities to create wealth, which, together with the financialization of savings will in turn continue to drive demand for wealth management services.

While the current crisis has temporarily reversed a long period of annual year on year growth in HNI wealth, we expect wealth growth to resume by FY22. However, the immediate aftermath of this crisis has led to AUM declines and a temporary halt in wealth creation and net new flows resulting in underlying revenue drivers facing significant preparing for a challenging outlook in the near term while simultaneously focussing and preparing our business to capture long term growth potential by:

- Enhancing our delivery platform and operating model to effectively combine the expertise provided by the physical presence of a Relationship

Manager, with the efficiency, convenience and scalability of a digital platform to take the client experience to the next level

- Continuous focus on cost and productivity optimizations to generate positive operating leverage and improve cost to income ratios and optimization of capital deployed to enhance ROE

- Consolidate our market share and drive growth via differentiated product offerings and evaluation of inorganic opportunities to enhance the growth trajectory


We believe that the following factors have significantly affected our results of operations and financial condition during the period under review and may continue to do so in the future.

Our Assets under Management:

Our results of operations are materially affected by our AUM.

Accordingly, our growth and success significantly depend upon the appropriateness of investment options provided and the performance of our client portfolios and funds. Good investment performance increases the attractiveness of our products with clients resulting in higher inflows and a consequent increase in our revenues. Hence, events adversely impacting such investment performance (relating to stocks, bonds, commodities or real estate related investments) may adversely affect our business. To mitigate these risks, we have a Product team that shortlists products, which are offered to clients. We also have a Product Approval Committee for complex / structured products. That apart, we do a detailed Risk Appetite assessment of the client, and accordingly prepare an Investment Policy Statement (IPS) for the client. Hence, actual asset allocation can be checked against this and corrective action can accordingly be taken. That apart, our Internal Auditors specifically check that investment rationales are maintained and regularly updated. We also have Investment and Valuation Committees and a Risk Management team that monitor portfolios that are managed by us internally within the group.

General economic and financial services industry conditions in India: Our Company is engaged in the business of providing wealth management services and with a majority of our operations within the domestic Indian market, our results of operations are highly dependent on the overall economic conditions in India, including the GDP growth rate, inflation rate, change in demographic profile, wealth levels, the economic cycle, prevalent interest rate regime, securities markets performance, and the increased usage of technology based channels. We believe that the Indian economy has grown rapidly over the past decade and is expected to continue to grow at a healthy rate (leaving apart temporary blips like 2019 and 2020), which, together with the increasing financialization of savings, could in turn, drive the underlying demand for investment products and services.

However, if the general economic conditions in India deteriorate or are not in line with our expectations, or unforeseen events adversely affect our client investment portfolios, our financial condition and results of operations may be materially and adversely affected.

Competition and Market:

We face significant competition in all aspects of our business from other established Indian and multi-national companies.

Some of these firms have greater resources and/or a more widely recognised brand than us, which may give them a competitive advantage. Mergers and acquisitions involving our competitors may create entities with even greater competitive advantages. We also face competition from several players who offer financial advisory services purely on technology platforms, in a highly cost-competitive manner (‘Robo-advisors). These competitive factors could reduce our market share and profitability.

There is also a fundamental change that is happening in the distribution of financial products, as the industry is moving gradually from a commission-based model to a fee-based model, that is having an effect on the revenues of asset allocators like our Company. The IIFL-ONE product platform has been launched to address this change and clients are gradually moving to this platform.

We believe our wide product offering, our relationships with clients, industry and product knowledge, and brand image will allow us to face such competition. We have a dedicated technology team, which has both domain and technology experts, and we are leveraging technology to deliver insights and interact with clients through different platforms.

Regulatory supervision:

We operate in sectors that are regulated in India, and our activities are subject to supervision and regulation by multiple statutory and regulatory authorities including SEBI and RBI and the various stock / currency / commodity exchanges.

In recent years, existing rules and regulations have been modified, new rules and regulations have been enacted and reforms have been implemented, which are intended to provide tighter control and more transparency in the various regulations and policies. Such changes in government and regulatory policies affecting the financial services industry may require changes to our business operations, products and pricing, and technological processes and thus may involve additional costs and management time. While it may be possible that certain regulatory changes would be positive for some of our business operations, it may also so happen that such changes could adversely affect our financial condition and results of operations.

We have a dedicated Compliance team to interpret regulations, submit regulatory returns and interface with Regulators. We also have Anti-Money Laundering (AML) Policies and AML Committees for our various businesses to deliberate on client onboarding.

Personnel and operating costs:

We function in a highly competitive industry and accordingly, our ability to manage our expenses directly affects our business and results of operations. These expenses may be impacted by macroeconomic conditions including increases in inflation, c hanges in laws and regulations, increased competition, personnel expenses and other factors.

Personnel related expenses constitute a significant proportion of our total expense. However, it can be difficult and expensive to attract and retain talented and experienced employees. In addition, we also strive to ensure effective utilisation of our human resources and may need to adjust to the dynamic business environment as we increase our scope of operations, and expand into new business products. As we grow our business, we will require additional human resources including relationship managers, investment professionals, dealers and operational, management and technology staff. Changes affecting our expenses may impact our financial condition and results of operations.

Operations and Technology:

Any complex set of operations creates the possibility of frauds and errors. To mitigate against these risks, we have written procedures, maker-checker controls and approval of all exception requests by Risk Management. The efficacy of these controls is checked by Internal Audit. Information Technology systems are crucial to the success of our business operations and help us to improve our overall productivity. They also pose a key risk in terms of failure of systems, information security failures and the possibility of cyber-attacks. Our Technology team has deployed multiple defences to mitigate the risk of cyber-attacks and prevent unauthorised access to, and leakage of, sensitive information. We have network security in the form of a firewall, also have a strict perimeter device security policy, where we have blocked access to personal email, social networking and data sharing websites, USB and local drives and forced users to save working files on a company administered OneDrive. While access to emails is accessible on mobile phones, no files / attachments can be saved on these devices.

We also have a Business Continuity and Disaster Recovery plan, with data being stored on a cloud server, which we have tested. During the Covid-19 induced nation-wide lockdown in 2020, we tested our ability to support operations in a work from home (WFH) environment and we managed to execute this in a stable manner, with users logging in through a virtual private network to access their office-based applications, thereby ensuring that no information security controls were compromised.

Inflation risk:

Of late, India has experienced relatively benign rates of inflation. Inflation affects interest rates and hence, higher inflationary expectations lead to rise in borrowing costs and slowdown in credit offtake, which may affect our profitability. Adverse changes in credit offtake and savings caused by inflation also impacts the overall economy and business environment and hence could affect us.

Development and Implementation of Risk Management System

We have a separate Risk Management department that reports to the Chief Operating Officer and the Audit Committee of the Boards of IIFL Wealth Management Ltd. and its subsidiaries. Risk Management relies on the internal controls built into Standard Operating Procedures, and the Risk Management, Product and Investment Policies relating to the various businesses: e.g. the Broking Risk Management Policy, the MF Risk Management Policy, the Policies for Loan Against shares, Loan Against Property and Unsecured Lending and Investment Manuals and Policies that exist for our NBFC and Asset Management Company. We also have Valuation and Provisioning Policies for our MF and AIF portfolios. There is representation from the Risk Management team on Investment, Valuation and Risk Management Committees of the various businesses. The internal processes have been designed to ensure adequate checks and balances and regulatory compliances at every stage. Authority matrices have been defined going down from the Board of Directors, to provide authority to approve various transactions. All trading limits have been put on the respective trading systems in Stock and Commodities broking, and asset management businesses. That apart, Risk Management conducts internal reviews (using external Chartered Accountants, where required) of various aspects of the business, which include documentation in relation to the lending business; compliance with various regulations in AIF and checking of certain regulatory returns.

The Company has invested in ensuring that its internal audit and control systems are adequate and commensurate with the nature of business, regulatory prescriptions and the size of its operations.

The Internal Audit of the Company and its subsidiaries is conducted by an independent firm of Chartered Accountants, as per the scope suggested by Risk Management and approved by the various Boards.

The scope of internal audit covers all aspects of business including regular front-end and back-end operations, HR, Finance, Customer Service, IT and checking for both regulatory and internal compliances. Internal audit team carries out a risk-based audit of various processes to provide assurance on the adequacy and effectiveness of internal controls. The Internal Auditors also check and opine on the state of Internal Financial Controls. Internal Audit reports are presented to the Audit Committees of the various boards directly by the Internal Auditors.

In addition, the Company complies with several specific audits mandated by regulatory authorities such as SEBI / Exchanges / Depositories, and the reports are periodically submitted to the regulators.

The Board/Audit Committee reviews the overall risk management framework and the adequacy of internal controls instituted by the management team, through the monitoring of the Internal Audit and Statutory Audit reports and through the Risk Management Committee, to which a detailed presentation is made by the Head – Risk Management. The Audit Committee reviews major instances of fraud, if any, on a quarterly basis and actions are taken on the same. It also focuses on the implementation of the necessary systems and controls to strengthen the system and prevent such recurrence.

Internal Financial Controls

The Company has in place adequate internal controls with reference to financial statements and operations and the same are operating effectively. These are encapsulated in the Risks & Controls Matrix (RCM). The Internal Auditors tested the design and effectiveness of the key controls and no material weaknesses were observed in their examination. Further, Statutory Auditors verified the systems and processes and confirmed that the Internal Financial Controls system over financial reporting are adequate and such controls are operating effectively.