CNBC's Inside India newsletter: India's wealthy population evolves

This report is from the CNBC "Inside India" newsletter, which provides timely and insightful news and market commentary on the emerging powerhouse and the big businesses driving its rapid growth. If you find it interesting, you can subscribe here.

The big story

The country is grieving the loss of Ratan Tata, a renowned industrialist and philanthropist.

The Tata Group was brought to the global stage by the former chairman through a series of high-profile acquisitions.

He became one of India's wealthiest tycoons due to his strong business acumen.

The billionaire was ranked 421 on the IIFL Wealth Hurun India Rich List 2022, with a net worth of approximately 38 billion Indian rupees ($452 million). However, a separate list by Fortune India-Waterfield valued his net worth at 160.4 billion Indian rupees, which included his stakes in Tata Sons, , , and .

The Tata, Ambani, and Adani families are renowned for their wealth and influence.

The super-rich population of South Asia is increasingly becoming less representative of the region's growing powerhouse.

A new rich populace

According to Himanshu Kohli, co-founder of Client Associates, the previous belief that rich people were only leaders of traditional business conglomerates, such as the Tatas, Birlas, or Ambanis, is changing today.

According to Kohli, India's wealthy individuals now originate from a diverse range of industries.

He explained that a substantial amount of money has been generated across various sectors, including sports, movies, celebrity world, investment banking, and private equity.

Individuals who have "created substantial value" in their jobs or organizations are now being recognized, Kohli noted. These professionals, often in the C-suite bracket, have the potential to "create $50 to $200 million in wealth over a lifetime," he said.

Pramod Gubbi, co-founder of Marcellus Investment Managers, stated that another way to attain rich status are owners of listed companies who have sold part of their shares in the stock market rally, owners of previously unlisted businesses who have sold shares in their IPOs, and startup founders who have sold their businesses or shares to multinationals or bigger companies.

As more Indians opt to establish their own businesses rather than working for corporations, a study from the Lee Kuan Yew School of Public Policy at the National University of Singapore found that the number of startups in India increased by 71.5% from approximately 20,000 in 2021 to over 34,000 in 2023.

In 2022, many Indian startups took advantage of the private equity boom by selling shares. Now, during India's IPO boom, these startups are hoping to make profits by cashing out.

During the funding winter, many startup founders sold their shares and gained wealth. This allowed them to invest in financial markets and earn substantial gains.

The stock market rallies in India over the last three to four years have benefitted individuals across different ages and professions, as observed by the investment manager.

India's stock market surpassed Hong Kong to become the fourth-largest in the world at the beginning of the year. Since then, markets have been steadily increasing, with the BSE Sensex index up approximately 12% year-to-date and the Nifty 50 index rising by around 13.8%.

What is 'rich'?

Wealth managers do not have a fixed definition of "rich," but a widely accepted threshold for high-net-worth individuals is between 50 and 250 million Indian rupees. Those with wealth over 250 million rupees are considered ultra-high net worth, while those with wealth between 10 and 50 million rupees are affluent, Kohli stated.

The number of India's ultra-wealthy population, defined as individuals with a net worth of at least $30 million, increased by 6.1% from the previous year to 13,263 in 2023, according to Knight Frank. This number is expected to grow by 50.1% between 2023 and 2028, making it the fastest growth rate for UHNWIs globally.

While the population of UHNWIs is growing at a rate of 10% annually, the growth rate of HNWIs is estimated to be 16%.

Every few minutes, one HNWI with a projected wealth of $1 million is born in India, while three UHNWIs with upwards of $30 million are born daily. This represents the positive trends occurring in our society today.

The age profile of India's wealthy has shifted, with millionaires aged 30 or 40 becoming more common, according to Marcellus' Gubbi.

Another trend, he notes, is that wealth management is expanding beyond major cities. "While the majority of wealth accumulation has occurred in metropolitan areas, I believe the wealth management industry is also gaining traction in smaller cities," Gubbi stated. Examples of these cities include Pune, Hyderabad, and Ahmedabad.

In the outskirts of Chennai, he observes the wealthy emerging in industrial areas, where there is significant growth in manufacturing, leading to prosperity.

Drivers of India's wealth

India's economic progress is mirrored by the increase in its wealthy population, with the country projected to be the world's third-largest economy by 2027.

"India's economy and stock market are performing well, and it is the only other economy besides the U.S. to have consistently created wealth in the stock market over the past 30 years since liberalization, according to Gubbi. This has benefited both businesses and individuals by enabling stronger wealth accumulation, he added."

The shift from physical assets to financial assets is contributing to the increase in India's wealthy population, according to the investment manager. This change was primarily driven by a decrease in income generated through tax evasion and unaccounted real estate transactions.

He stated that the move to financial assets resulted in a significant increase in wealth due to the higher returns it generated.

Implications of a wealthy populace

The wealthy in India have a significant impact on the country's growth story, as their substantial influence on consumption and investment behavior is indicative of India's economic trajectory.

Malcolm Dorson, a senior portfolio manager at Global X ETFs, stated that many UHNWIs and HNWIs are interested in investing in themselves and future generations by purchasing high-quality products and services. Global X's parent, Mirae Asset, is one of the largest foreign asset managers in India.

He anticipates that numerous sectors, including wealth management, autos, health care, real estate, and education, will experience growth due to the premiumization trend.

Dorson stated that the UHNWI and HNWIs are investing in luxury vehicles from Mercedes and Volvo, high-quality jewelry from Titan, and better healthcare at private hospitals like Apollo Hospitals. As a result, growth opportunities exist in India as more people become affluent.

Need to know

Canada expelled Indian diplomats in response to India expelling Canadian diplomats. Canadian authorities made the move after discovering evidence that the Indian government targeted Canadian citizens in a campaign related to the 2023 assassination of a Sikh activist in Canada. The RCMP (Royal Canadian Mounted Police) gathered ample, clear and concrete evidence which identified six individuals as persons of interest in the Nijjar case, Foreign Minister Mélanie Joly said in a statement.

Hyundai Motor India's IPO attracted significant investment from two major entities, BlackRock and the Government of Singapore, each purchasing $77.3 million worth of shares. Fidelity also bought a $76.5 million stake. The automaker's IPO raised a total of $989.4 million from institutional investors, making it India's largest share offering and the second-largest IPO globally this year. This is the first time Hyundai Motor is listing outside South Korea, and the stock will be publicly listed on Oct. 22.

The UK prioritizes a trade deal with India. According to U.K. Business and Trade Minister Jonathan Reynolds, there are clear economic and commercial reasons for pursuing trade deals with India and Gulf states. Talks between the two countries are currently in their 15th round and could resume this month, as per India's Commerce Secretary Sunil Barthwal. However, India's Minister of Commerce and Industry Piyush Goyal urged patience, stating that a trade deal is never done with a gun on the head, either to the UK or to India.

What happened in the markets?

Over the past five trading days, Indian stocks have dropped approximately 1%, after a week of no growth the previous week. Despite this, the Nifty 50 index has increased by nearly 14% in the current year.

This week, the 10-year Indian government bond yield has mostly remained unchanged, reaching a high of 6.775% by Thursday afternoon.

According to Manish Chokhani, director at ENAM Holdings, multinationals operating in developed economies are experiencing a slowdown. As a result, these companies are investing in India, where growth prospects and terminal values are higher.

Citi's Chief India Economist Samiran Chakraborty stated that the Reserve Bank of India must address the country's balance of payments surplus, while underemployment in the Indian labor force is a more significant challenge than unemployment.

What's happening next week?

On October 22, Hyundai Motor begins trading publicly, and on October 24, India's manufacturing and services PMI is released.