India has become a prime opportunity for investors and financial institutions because of the country’s transformation into a more digital environment.
At Bloomberg’s inaugural Buy-Side Forum Mumbai 2023, a panel discussion discussed the Indian market’s growth trajectory and technological advancements, as well as the significance of big data and other industry themes.
Diverse investment strategies
Funds investing in India have consistently outperformed investments in other emerging markets. While India only makes up 2% to 3% of portfolios held by U.S. asset owners, there’s a noticeable trend of global capital inflows. India’s 2022-23 Economic Survey reports gross foreign direct investment inflow of $84.8 billion recorded in fiscal year 2022. This suggests India is a preferred investment destination for many international investors.
By contrast, local investors demonstrate a higher tolerance for local risk and possess the flexibility to build diversified portfolios that encompass a broader spectrum of opportunities.
Coexistence of active and passive funds
Passive investing has gained traction in India, seeking to replicate the performance of a specific benchmark index instead of active investment selections. India saw a 34% increase in passive assets under management over the 12-month period ending March 2023, according to a report by the Association of Mutual Funds in India. This growth was fueled by low-cost ETFs and index funds, which witnessed a 144% surge in the past year. Many large investors, including Employees’ Provident Funds and pension funds, are attracted to passive funds as a stepping stone in their investment journey.
The panelists agreed that active and passive funds can coexist. Active funds provide expertise in asset allocation, while passive funds offer cost-effective market access. Active funds remain vital for long-term growth due to India’s low mutual fund penetration. Individual investors will continue to seek active funds for guidance and support even as passive funds become more popular.
Insurance for all
While India has been relatively underpenetrated in the insurance sector, “insurance for all” has become a mantra of late. The Insurance Regulatory and Development Authority of India is working on a three-pronged approach — availability, accessibility and affordability — to ensure insurance for all by 2047. The success of group policies, such as the Pradhan Mantri Jeevan Jyoti Bima Yojana, have played a pivotal role in raising awareness about insurance and expanding coverage.
RM Vishakha, Managing Director and CEO at IndiaFirst Life Insurance, called for redefining the measurement of insurance penetration beyond conventional indicators such as GDP and premium percentages. She proposed alternative metrics such as evaluating lives covered and individuals’ potential revenue-generating capability. The panelists also raised the importance of comprehensive data analysis and a state insurance plan to bridge existing gaps and ensure insurance accessibility.
Tech’s importance for insurance
Vishakha highlighted technology as a vital component for the insurance industry. Insurers can thrive by enabling task automation, expediting workflows, simplifying data and financial transactions, and facilitating seamless customer-onboarding processes. Technology can also streamline insurance products, making them more accessible to customers and improving accessibility. Vishakha also spoke about the need for advanced technological solutions to detect and prevent fraudulent activities during onboarding.
Onus on investor education
Investor education is everyone’s responsibility, with Subramanian emphasizing the substantial responsibility carried by the buy-side industry to educate and inform investors, including in balancing risk awareness and potential returns. This is particularly important in markets with low penetration, where convincing investors to consider alternative investment options remains a challenge.
Governance and profitability
In addition to investor education, the panel also discussed the importance of good governance and long-term profitability in investment decisions. Nilesh Shah, Group President & Managing Director, Kotak Mahindra Asset Management Company, emphasized the three pillars of robust governance practices, transparency and ethical conduct for achieving sustainable profitability. Competent management is a must for strategic decision-making and resource allocation, Shah said, highlighting the adverse consequences of poor governance on investor confidence.
A path to future opportunities
As India’s growth trajectory unfolds, these insights will serve as beacons. Buy-side leaders will need to continue their pursuit of sustainable growth, inclusivity and long-term prosperity in order to unlock India’s vast potential.
The panel agreed that, by embracing these principles and staying on its current trajectory, India can confidently solidify its position as an in-demand force on the global stage.