Indian Wealthtech - A $60 Bn Opportunity by Fy25

Paradigm shift in how India Invests!

Only 2% Indians invest in stocks at present, resulting in stock market capitalization at 76% of GDP. Comparing this with developed economies, such as the US, 55% Americans invest in stocks, resulting in stock market capitalization at ~150% of GDP. This shows a significant gap between India and developed economies, and therefore presents a significant headroom for growth.

Over the years, there has been a steady growth in the Indian equity markets, MF Folios & Demat accounts. Despite COVID-19 making a detrimental impact in March-2020, the Indian stock indices such as BSE Sensex & Nifty Fifty have been resilient and bounced back to pre-COVID levels by October-2020 and is expected to continue its bullish trend.

This strong performance of Equity & MFs has led to strengthening and entry of several Wealth management models, with ‘Wealthtech’ generating quite a buzz in the last few years. Wealthtech is defined as those Digital platforms which enable “End-To-End Digitization” of The Investment journey of a retail investor. This entails a customer self-onboarding on the app/web, investing as well as redeeming “Digitally”. While multiple cohorts have started digitally investing, Wealthtech customers primarily include Millennials who constitute 70% of the customers using these platforms.

Currently, India has ~4 Mn Wealthtech investors (FY20), who are expected to grow by ~3x to reach ~12 Mn by FY25.

This growth will be driven by:

• High awareness and usage of digital platforms across equity and mutual fund investments.
• Rise in investors from Bharat (Tier 2+ cities) driving adoption of digital platforms.
• Digital savvy Millennials with higher disposable incomes (comprise 1/3rd of population) will boost investments via digital platforms.
• Smoother & hassle-free customer journey on digital platforms leading to higher customer satisfaction, which in turn will give a strong stimulus to digital platforms.
• COVID-19 has come as a boon in disguise for digital platforms as there has been an increase in “New investors” as well as increase in average investments and usage on these platforms.
• At the same time, there is a continued interest among investor community in the Indian Insurtech sector with investments rising by 5x in last 5 years.
• On the backdrop of above drivers, the Indian Wealthtech market is expected to grow by 3x, rising from ~$20 Bn (FY20) to ~63 Bn (FY25).

Driven by the immense opportunity in Wealthtech sector, multiple business models have come up targeting various customer cohorts. While Digital brokerage models (Discount stockbrokers) majorly target Retail customers, the Traditional brokerage models (Full-service stockbrokers) target both the HNI & Retail customers.

Digital brokerage models are growing at a breathtaking pace and have gained significant market share displacing some of the leading Traditional models. This growth is driven by higher customer stickiness as Digital brokerage models charge less brokerage fees & enjoy higher customer satisfaction when compared to the Traditional models. This has led to significantly better LTV:CAC ratio for Digital brokerage models leading to higher profitability per customer. At the same time, it leads to stronger unit economics for Digital brokerage models vs. Traditional brokerage models.