INSIGHTS & OPPORTUNITIES: NAVIGATING THE INVESTMENT LANDSCAPE Report @Lattice Technologies Pvt. Ltd. MAR, 2024 Out of India's total population, 7.4% was diversified asset classes previously Foreword invested in the stock market in CY22, dominated by physical assets. which was merely 2% pre-covid. While the retail investment is booming, Traditionally, Indian investors preferred to India still faces significant hurdles due to invest their money in physical assets the prevailing issue of a lower financial compared to financial ones. However, literacy rate. Government efforts aimed at retail investors became aware of financial enhancing financial literacy and and medical emergencies during the implementing strategies to stimulate pandemic, which paved the way for the investment will result in the creation of stock market and other digital investment more investment prospects. However, avenues. Hitherto, people were more there is a need to prioritize the promotion concerned about saving their of modern investment options and hard-earned money. Today, there's a greater utilization of digital platforms to trend toward wealth creation rather than uplift India's retail investment market. just saving. This shift has fueled the popularity of alternative financial assets This report aims to provide various such as mutual funds, stocks, and other industry stakeholders, including business investment options in the market. leaders, an overall perspective on the market. The situation is evolving rapidly, As the economy is moving towards and some expected scenarios might digitization, the accessibility of internet is have slight variations. The report reflects helping retail investors to adopt online our perspectives as of December 2023. platforms for their investing purposes. The We look forward to continuing the online marketplace for investment in India discussion with our friends across sectors is booming, making it easy and and exchanging notes. convenient for retail investors to enter Abhilasha Jaju Director Glossary Acronyms Definition Acronyms Definition RBI Reserve Bank of India SPF Sole Proprietorship Firm SEBI Securities and Exchange Board of India HUF Hindu Undivided Family PPF Pension and Provident Fund AIF Alternate Investment Fund NSE National Stock Exchange NDA National Democratic Alliance BSE Bombay Stock Exchange UBS Union Bank of Switzerland SIP Systematic Investment Plan FACTA Foreign Account Tax Compliance Act AMFI Association of Mutual Funds in India MSDE Ministry of Skills Development and Entrepreneurship ROI Return on Investment PMS Portfolio Management Services GST Goods and Service Tax ESG Environment, Social and Governance RERA Real Estate Regulatory Authority REIT Real Estate Infrastructure Trust ETF Exchange Trade Funds InvIT Infrastructure Investment Trust FII Foreign Investment Institutions SDG Sustainable Development Goals DII Domestic Investment Institutions CAGR Compound Annual Growth Rate NRI Non-Resident Indian ULIP Unit Linked Insurance Plan [1/2] Executive summary Trends in physical assets Investment sector overview • House price index has increased at a CAGR Investment can broadly be categorized into of 7.9%, post the global financial crisis; real financial and physical investments based on estate sector has recovered since FY21 type of investment product. causing a surge in retail credit for housing Financial assets grew at a CAGR of 6.5% over • Gold still remains an attractive option for the year FY09-FY23 , while physical assets grew investments, especially during uncertainties at a CAGR of 11.9%. due to less volatility associated with it Trends in financial assets • There is inclination towards digital gold • In the past 5-6 years, bank deposits have since COVID 19 seen slower growth due to shift towards securities • Amidst COVID 19, there has been a decline in interest rates for fixed deposits, PPFs, Digital Investment Landscape and other small saving schemes • Presence of e-trading has been in India • Sensex and Nifty 50 have reached an since 2000; the ‘ Digital India’ movement in all-time high mark in the first half of FY24 2015 gave a boost to digital investment as a result of positive outlook of Indian market economy • Trading in cryptocurrency was legalized in • Repo rates by RBI have recovered to 2020, while 2021 saw a drastic increase of pre-pandemic levels in FY23 after the 70% in purchase of digital gold record low drop to 4% in FY21 and 22 • In recent years, a lot of new players have caused by the severe economic downturn entered the wealth management space in • AUMs grew at a CAGR of 17.4% from FY09 to the discount broking and cryptocurrency FY23 due to increased awareness, and segment and have been able to capture digital penetration; they have surged even considerable market share higher in the first two quarters of FY24 [1/2] • Discount brokerages account for ~59% Challenges and Government Initiatives of active accounts in FY23; Zerodha and Challenges Groww have the largest share in terms of number of active clients • Only 27% of Indian population is financially literate; financial education to teenagers and young adults • Easy & convenient investing, less can help increase this rate by 20% in next 2 service charges & end-to-end service decades availability on a single platform attract people towards online investment for • High unemployment rate, non-uniform tax financial assets reforms, investment from NRIs, and change in government are the other major challenges in • Online investment in physical assets Indian investment market offers high asset liquidation, varied options, transparency in charges, less Government Initiatives touch & feel & time saving compared to • Government has adopted the ‘5 C’ approach offline mode (Content, Capacity, Community, Communication and Collaboration) to promote financial literacy in Retail Investors in India India • Demat accounts in the last 7 years • Initiatives related to increase in investments and have grown at a CAGR of 24.3%, from taxes and duties are being taken for an increase in 25M in FY16 to 115M in FY23 investment in physical and financial assets • There has been a boost in individual investor participation in NSE from 33% in FY16 to 37% in FY23 Way Forward for Investment Market Crashes • Heightening the financial abilities of Indian population is necessary to cause general economic • Political instability, recession and fall in growth and increase in the standard of living international markets have been the major reasons for market crashes in • Increase in public-private partnerships and India acceleration of funding provided to agricultural and rural sectors can help solve the problem of • Loss of optimism, shift towards low-risk unemployment in India assets like gold and bonds and liquidation of investments at • Newer investment options like ESG investments, InvITs disposable prices are the common and REITs are gaining traction among retail investors, reactions gained from retail investors owing to the promising returns during market crashes © 1Lattice | 05 Agenda Investment Sector Overview Digital Investment Landscape Retail Investors in India Challenges & Government Initiatives Way Forward for Investment Investment sector overview Investment can broadly be categorized into financial and physical investments based on type of investment product Investment Financial Physical Bank Real Other Metals Other Securities Cash Gold Products Estate and Gems Collectibles Silver, platinum, and Arts and antiques Mutual diamond Stocks Bonds Funds Bank Pension and Insurance Deposits Provident Funds Source(s): Secondary research, 1Lattice analysis © 1lattice | 07 Investment sector overview Share of physical assets that showed a dip in FY21 is recovering again and accounts for ~73% share in total household assets in FY23 Total Household Assets Overview (FY09 –FY23) (INR T) CAGR • Steep increase in total (FY09-23) investments from FY09 – FY23 at a CAGR of 10% 13.3 16.3 18.3 19.8 21.9 22.8 24.4 24.9 27.9 33.0 38.4 38.4 44.3 46.2 50.5 10.0% • Outperformance of financial assets in FY21 due to increased inclination toward wealth creation than saving 49% 52% - Shift from traditional bank 55% 56% 57% 59% 60% 60% 61% 61% 64% 64% deposits towards other 68% 67% 73% 11.9% financial instruments • Significant shift towards physical assets post FY21 owing to: - Recovery of real estate 51% sector 48% 45% 44% 43% 41% 40% 39% 40% 39% 36% 36% 32% 33% - Increasing house prices 27% 6.5% and desire for home ownership acting as motivator FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 - Increase in financial liabilities due to people taking loans for housing, Financial Assets Physical Assets education and vehicle Source(s): RBI, SEBI, Secondary research, 1Lattice analysis © 1lattice | 08 Investment sector overview Slow growth in bank deposits can be seen in the past 5-6 years, owing to the significant shift of people towards securities Total Investment in banking products (FY09 –FY23) (INR T) Overview CAGR • Increase in deposits of (FY09-23) banks due to demonetization 6.4 7.9 9.0 8.2 9.1 10.2 10.7 11.8 16.2 12.3 15.7 16.9 22.5 22.5 22.2 9.3% - Flow of unaccounted 20% 20% 21% 9.4% 22% 22% 24% 23% 24% 25% 25% 25% 24% money in the form 28% 28% 33% of INR 500 and INR 1000 notes into 17% 17% 11% 12% 16% 20% banks 25% 28% 21% 18% 17.0% 26% 30% • Slower growth in bank 31% 16% 30% deposits currently, due to availability for options like mutual funds and shares where 65% 64% 63% 63% 6.6% 61% higher returns are 58% 54% 53% 53% 51% 50% 51% expected 46% 44% 42% • Decline in interest rates of Fixed Deposits (FD), PPF, and other small saving schemes amidst FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 the COVID-19 pandemic • Significant shift of retail Bank deposits PPF Insurance investors towards stock markets Source(s): RBI, SEBI, Secondary research, 1Lattice analysis © 1lattice | 09 Investment sector overview Sensex and Nifty50 have reached an all-time high mark in the first half of FY24 as a result of positive outlook of Indian economy Sensex & Nifty50 performance over the period Overview (FY09 – FY24 (till Q2)) • Indian stock market has grown CAGR over the last 17 years due to flow (FY09-23) of liquidity from the global and 64,856 domestic investors • Due to Covid-19, Sensex and 59,137 58,569 13.8% Nifty50 fell drastically by 38% • However, since April 2020, 49,509 market began rising consistently as the number of individual investors started 38,673 increasing due to increased awareness 29,621 - Nearly 10.5M new investors 29,468 27,957 were added in NSE in FY21, which increased to 19M in 19,445 19,581 18,836 FY22 17,465 17,210 13.2% 14,691 • Market saw another decline in 11,624 Feb 2022 due to Russia- 9,709 9,174 8,491 8,598 Ukraine war 5,834 5,683 3,021 • But, since the onset of FY24, the market has been growing radically due to higher GDP FY09 FY11 FY13 FY15 FY17 FY19 FY20 FY21 FY22 FY23 FY24 Q2 growth rate of 7.8% which stimulated positive sentiments Nifty50 Sensex among investors Source(s): NSE, BSE, Secondary research, 1Lattice analysis © 1lattice | 10 Investment sector overview RBI's repo rates rebounded to pre-pandemic levels in FY23, recovering from the record low of 4% in FY21 and FY22 during the economic downturn Repo rates v/s 10-year bond yield Overview (%) • Drastic decrease in the repo rates from FY19-FY22 to a record low rate of 4% • Decrease in repo rates triggered by: - Severe economic repercussions due to COVID 19 pandemic - Disruptions in supply chains and demands leading to lowering of policy interest rates by RBI 7.74% 7.68% - Decrease done to manage 7.35% 7.20% inflation dynamics 7.03% 7.05% 6.80% • Decrease in bond yields from FY19 to 6.50% 6.50% 6.75% 6.40% FY22 caused by 6.25% 6.25% 6.04% 6.00% - Decrease in repo rates - Increase in demand for safe haven assets • Recovery of repo rates and bond 4.40% yields as the economy recovered in 4.00% 4.00% FY23 • However, RBI MPC has paused repo rate trimming till Aug 24 due to FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 (till inflation uncertainty in upcoming Q2) months 10-yr bond yield data Repo rate Note(s): MPC stands for Monetary Policy Committee © 1lattice | 11 Source(s): BSE, RBI, Secondary research, 1Lattice analysis Investment sector overview AUMs grew at a CAGR of 17.4% from FY09 to FY23 due to increased awareness, and digital penetration; they have surged even higher in the first half of FY24 Overview Assets under management (AUM) –Mutual Funds (FY09 –FY24 (till Q2) (INR T)) • Steep increase of 17.4% in AUM of mutual funds from FY09 – 23, 46.6 owing to drift of asset shares towards smaller cities and towns facilitated by: 39.4 - Rising digital penetration 37.6 - Smart cities - Increased data speeds 31.4 CAGR • Increase in SIPs and monthly 17.4% collections, reasons being: - A large number of first-time 23.8 investors entering the market 22.3 21.4 - The simplicity of registering SIPs through online fintech 17.5 portals • Radical surge in equity fund 12.3 10.8 inflows from retail investors in 8.3 first half of FY24 , along with 7.0 6.1 5.9 5.9 contributions in SIP reaching an 4.2 all-time high of INR ~169B • With increasing financial literacy and savings-oriented culture, MF FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 industry is poised for a pivotal (till Q2) role in wealth creation AUM (INR T) Source(s): AMFI, Secondary research, 1Lattice analysis © 1lattice | 12 Investment sector overview House price index rose by 9.6% CAGR post-global financial crisis, with recent real estate sector recovery leading to increased retail credit for housing House price Index Overview (FY10-FY24 (till Q2)) • The most traditional form of investment in India among retail investors, however it has been losing its attractiveness since the CAGR last 5-6 years (FY11-FY23) • Reduction in charm of real estate 9.6% CAGR investment due to (FY16-FY22) - Decrease in returns over time where 4.6% 310.0 average returns from FY11-FY20 stood at 300.1 289.1 8.9% per year 282.6 276.5 267.4 - Increased awareness and shift of 254.8 CAGR mindset of people from wealth 237.1 (FY11-FY16) preservation to wealth creation, leading 218.6 16.9% to shift towards Mutual Funds and ETFs 198.8 • Real estate has been facing brakes in 171.2 growth since FY16 because of: 151.9 - Demonetization 123.8 - GST and Introduction of RERA 100.0 - COVID-19 pandemic • Recovery of real estate sector and in turn, physical assets since FY22, owing to: - Increasing house prices motivating individuals to buy homes - Low interest rates since pandemic, leading to surge in retail credit FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 for housing (till Q2) All India Note(s): For house price index, base year FY11 is taken as 100; Returns have been calculated basis the house price index Source(s): RBI, Secondary research, 1Lattice analysis © 1lattice | 13 Investment sector overview Gold remains an attractive option for investments, especially in times of uncertainty and market crashes due to less volatility associated with it Overview Trend of Gold prices (FY09 - FY24(till Q2)) • One of the most traditional 59,225 investment instruments among 56,850 Indians, continues to be an attractive option 50,045 CAGR • Steep increase in gold investments 12.6% since the global economic slowdown in 2008 • Gold outperformed stocks, amidst the geopolitical crisis and 35,220 recession currently, thus proving to 29,600 29,668 be a reliable option in times of 26,400 26,344 market decline - Return of 4.1% from MCX Gold compared to 1.1% return from BSE Bond index from Jan-Sep 14,500 2022 • Gold has less volatility compared to the equity investments over the long term, causing it to remain an attractive investment option • Inclination towards digital gold FY09 FY11 FY13 FY15 FY17 FY19 FY21 FY23 FY24 (till from online gold investment Q2) platforms due to ease and convenience of investing Gold prices (24 karat per 10 grams) Source(s): NSE, BSE, Secondary research, 1Lattice analysis © 1lattice | 14 Investment sector overview Aggressive Indian investors allocate the majority of their funds in equity as compared to conservative and balanced Indian investors Investor portfolio (%) Conservative investor • Portfolio applicable to investors with a low-risk appetite , who tend to avoid possible losses and save capital • Interested in achieving stable return from investment in 5% fixed income like debt 7% 10% 9% • Minuscule investment in equity 12% 10% 8% 5% 14% Balanced investor • Portfolio applicable to investors with a moderate-risk 44% appetite with an aim to surpass inflation • Focussed on gaining average returns maintaining a 67% balance between fixed and equity income 67% • Generally, consider investments in low to medium-volatile market 34% Aggressive investor 8% • Portfolio applicable to investors with high Aggressive Balanced Conservative -risk appetite who aggressively invest in investors investors investors equity to generate higher returns • Preference of highly volatile market for Equity Liquid assets Fixed income (FD, PPF, etc.) investments to ensure long-term wealth creation Real Estate Alternatives (Gold, commodities, etc.) • Miniscule investment in the fixed income Source(s); Press releases, Reports, Secondary research, 1Lattice analysis © 1lattice | 15 Agenda Investment Sector Overview Digital Investment Landscape Retail Investors in India Challenges & Government Initiatives Way Forward for Investment Digital investment landscape Presence of e-trading has been in India, since 2000; the ‘Digital India’ movement in 2015 gave a boost to digital investment market History of digital investment in India • Start of internet trading in • Legalization of trading in stocks in India 2000 • Presence of nearly 19 cryptocurrency by Supreme • First stock exchange -NSE direct mutual funds 2019 2020 court, lifted the ban imposed platforms in India by RBI • Online trading value – • RBI’s ban on More than INR 7B cryptocurrency in • Increase in purchase of India by Supreme 2005 • Nearly 1.1M trading digital gold by 70% due to 2018 2021 court, due to its subscribers COVID-19 high-risk factor • Introduction of first • Launch of one of the first • Taxation of nearly 30% levied direct mutual funds discount brokerage 2010 on all virtual digital assets, i.e. 2022 2017 platform by Zerodha – platform –Zerodha cryptocurrency & Zerodha coin non-fungible token (NFT) • Increase in total • Heavy inflows in small and online trading • Entry of cryptocurrency mid-cap funds and SIPs 2012 2015 volume from 11.6% 2023 and digital gold in India leading to drastic increase last year to 24.2% in in MF AUM current year Source(s): NSE Factbook, Press releases, Secondary research, 1Lattice analysis © 1lattice | 17 Digital investment landscape New entrants in discount broking and crypto wealth management have rapidly gained significant market share Legacy Discount Discount brokers Direct MF Crypto-currency Digital gold and direct MF players platforms platformsI platforms brokers platforms Source(s): Press releases, Secondary research, 1Lattice analysis © 1lattice | 18 Digital investment landscape Discount brokerages account for ~59% of active accounts in FY23; Zerodha and Groww have the largest share in terms of number of active clients The share of discount brokerages increased Zerodha and Groww constitute nearly 36% share ~25% from FY20-FY23 in terms of number of active clients in FY23 Share of different business models in Share of top brokers by # active accounts for top 10 brokers # active accounts in FY23 M Others Zerodha 2.7 3.0 4.8 5.4 7.1 13.0 28.0 25.8 13% 14% 14% 18% 22% 22% 22% 24% 25% 22% 20% 22% 35% 50% 60% 66% Top Legacy 78% Groww 76% 16% 18% players 61% 59% 51% 36% 2% 18% 13% 12% 9% 5 Paisa FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 Top legacy Discount brokerages Full sevice brokerages Hybrid players Upstox Angel One include HDFC, No data ICICI, Kotak, recorded for Discount brokerages discount Axis, IIFL, include Zerodha, Uptox, Motilal Oswal brokerages Groww and 5 Paisa till FY17 and Sharekhan Note(s): Hybrid includes Angel Broking © 1lattice | 19 Source(s): NSE, 1Lattice analysis Digital investment landscape Convenient, cost-effective, and comprehensive online platforms attract individuals to invest in financial assets Financial Assets Online Investment Offline Investment • Complete dependence on broker for all • Lack of need for assistance from a the investment-related services Ease of investing broker, while investing online • Facility of investment from anywhere • Need to make physical visits to the Convenience of and at any time through any broker’s office for investment and internet-enabled device like investing allied activities smartphones, laptops, tabs or PCs. • Negative impact on profits due to • Prospect for more profits from the brokers charging exorbitant trading, due to lower brokerage Service charges charges and fees charges and fees • Need to carry out research from • Availability of single platform to carry multiple sources, before asking the Platform out research and trade in shares and broker to invest in a particular share securities and security • Access to various detailed reports with • Dependency on the broker for patterns, trends and price movements, investment decisions could lead to Quality of advice providing help in choosing the correct reduced profit margins if there is any stocks and securities misinterpretation of data © 1lattice | 20 Source(s): Press releases, Secondary research, 1Lattice analysis Digital investment landscape Online investing in physical assets provides high liquidity, diverse options, and lower maintenance and initial costs compared to offline methods Financial Assets Online Investment Offline Investment • Highly liquid form of investments • Liquidating an asset can be a challenge • Buying and selling of asset at the price • N egotiations that may not be in the Asset liquidation mentioned on the platform favor of either party • Investigation of various options on their • Availability of limited options and fingertip due to advancement in Varied options scope of deviation from the promises technology, while buying an asset made to the buyer • Maintenance of an online physical asset • Acquiring the assets needs diligence does not require effort as it is preserved Maintenance and efforts to maintain them so that in Demat and in certificate form it can appreciate • Requires a huge capital to invest in • Can start with a minimum investment to Initial investment assets like gold, real estate, etc. hold these assets • An investor is able to generate regular • Owning physical real estate and physical Consistent income income in the form of dividends and gold does not generate a consistent commission income unless it has been utilized © 1lattice | 21 Source(s): Press releases, Secondary research, 1Lattice analysis Agenda Investment Sector Overview Digital Investment Landscape Retail Investors in India Challenges & Government Initiatives Way Forward for Investment Retail investors in India Individual investor participation has boosted in the last 7 years, due to an increase in number of demat accounts from 25M in FY16 to 115M in FY23 Individual investors increased their participation Demat accounts in the last 7 years have grown in the NSE from 33% in FY16 to 37% in FY23 at a CAGR of 24.3% Investor participation at NSE # Demat accounts of retail traders % M 21% 24% 25% 115 29% 30% 31% 33% 33% 34% 12% 11% 10% 90 6% 5% 5% CAGR 4% 4% 6% 10% 10% 8% 24.3% 11% 11% 11% 9% 12% 12% 12% 16% 12% 21% 15% 15% 55 23% 15% 15% 41 36 32 28 25 45% 41% 39% 39% 39% 36% 37% 35% 33% FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 (till Q2) Individual Investors FII DII Corporates Others Includes retail Includes proprietary traders, Trusts, AIFs, etc. investors, NRIs, SPFs, and HUFs Source(s): NSE Pulse report, Press release, Secondary research, 1Lattice analysis © 1lattice | 23 Retail investors in India Recession and fall in international markets have been the major reasons for market crashes in India 7 Biggest Market Crashes in India Market Crash of Market Crash of 2020-22 Market 2016 Crash of Market Crash of 2015 Market • Tumbling of markets Market Crash of 2008 • Fall of ~16% in the in 2020, reason Crash of market due to: 2004 being 1992 - Increase in banks’ - COVID 19 • Market crash due NPAs pandemic to fall of 8.5% in • Tumble in markets - Decreasing crude - Possibility of the the Chinese stock due to fears of a • Largest fall in the oil prices crash of Yes markets, other recession in US history of Indian - Slowing of • Market crash bank , leading to reasons being: market Stock markets in Chinese economy due to a major massive wipe out - Poor earning by • Presence of other terms of - Lack of investor scam of INR of investors major Indian contributing factors: percentage confidence 5,000Cr wealth companies - Drop in interest • Crash of 15.52% in approximately • Sensex dropping by • Most recent crash in - Management rates Sensex due to the 6% and Nifty • Fall of over 12% 2022 due to doubts along - Lack of investor sudden fall of the dropping by 541 approximately Russia-Ukraine with poor confidence NDA government points in another faced by BSE conflict monsoon - Selling of shares • Sale of shares by crash in market, due UBS , an - Exiting the risky to announcement of institutional emerging markets demonetization investor fearing by FIIs and Foreign political instability Hedge Funds Source(s): Secondary research, 1Lattice analysis © 1lattice | 24 Retail investors in India During market crashes, retail investors often lose optimism, shift to lower-risk assets, and sell their investments at discounted prices Impact of the market crash on retail investors Retail investors become less Shift towards lower-risk assets Liquidation of optimistic, due to fall in the stocks, like bonds or gold which are investments at with news reports on price drops known to offer higher returns throwaway prices, to creating a sense of panic in the during periods of uncertainty. limit their losses. market. “I am stuck. I cannot exit the market at such prices, “My dreams of easy riches lay wrecked as BSE tumbled to three-year and I have neither money nor courage to buy now, lows last month, taking its losses in 2008 to more than 50% forcing considering the unstable condition of the market.” me to move my family to a cramped suburban apartment.” - Retired Government employee, 2004 - Middle class earner, 2008 market crash market crash “Gold has retained its value and purchasing “Buying government bonds can be useful if you need regular power during inflationary environment hence it is income over the long term and want to set a reliable, considered a normal hedge against inflation.” guaranteed floor for your income.” - Fincart, 2022 market crash - Stableinvestor.com, 2022 market crash “Rookie investors lack the experience to handle “Negative news such as a pandemic, an asset bubble that’s market downturn. Hence, they are vulnerable to about to burst, scams being revealed, etc., can influence any panic and tend to liquidate their investments to investor leading to panic. This panic often makes investor sell their limit their losses.” investments at low prices during a stock market crash.” - Canara Robeco Asset Management, 2015 - ET Money, 2020 market crash market crash Source(s): Press releases, Reports, Secondary research, 1Lattice analysis © 1lattice | 25 Agenda Investment Sector Overview Digital Investment Landscape Retail Investors in India Challenges & Government Initiatives Way Forward for Investment Challenges & government initiatives Financial literacy in India stands at 27%; educating teenagers and young adults can potentially raise this rate by 20% within the next 2 decades Financial literacy rate of various countries (%) Outlook for India’s financial literacy • India has lowest rank for financial literacy among all the BRICS nations , as per a survey 67% conducted by National Center for Financial Education in 2019 59% 57% - Only 27% of the adult population in India has understanding about basic financial 52% concepts - Nearly 80% of women population in India struggle with financial literacy 38% 35% • However, people have now started to understand the importance of financial literacy and are 28% 27% taking efforts to improve the same • Government has also adopted the 5 C approach and has come up with financial inclusion plan to improve the financial literacy rate in India • Nearly 27.6% of people between the age group 25-44 are now getting involved in the financial inclusion program • Proper financial education is being provided to UK Singapore US France Russia Brazil China India youngsters within the age group 10-19, constituting nearly 21.8% of India’s population - This can expand financial literacy by more than 20% in the next two decades Source(s): Press releases, IBEF, Secondary research, 1Lattice analysis © 1lattice | 27 Challenges & government initiatives Government has adopted the ‘5 C’ approach to promote financial literacy in India Collaboration Content • Preparation of an Information • Enablement of content on financial Dashboard literacy for everyone including children (curriculum and • Integration of financial education co-scholastic), senior citizens, content in the school curriculum persons with disabilities, illiterate • Introduction of various people, working population, etc Professional and Vocational courses (undertaken by MSDE) 05 01 ‘5 C’ Approach Capacity Communication 02 04 • Development of capacity of • Usage of technology, mass various intermediaries like media channels, etc. for brokers, agents, etc. who can 03 promotion of financial education help in providing financial messages literacy • Identification of a specific period • Enforcement of ‘Code of in the year to promote financial Conduct’ for financial literacy messages on large scale education providers Community • Evolution of various community-led approaches to propagate financial literacy in a sustainable manner Note(s): MSDE stands for Ministry of Skill Development and Entrepreneurships © 1lattice | 28 Source(s); RBI report, Secondary research, 1Lattice analysis Challenges & government initiatives Government initiatives related to increase in investments, taxes, and duties are being taken for an increase in investment in physical & financial assets Physical assets Financial assets Jewelry Park Setup SMARTs Program to Protect Investor • Allocation of land by government in Maharashtra • Introduced by SEBI to protect investors from loss and West Bengal to set up a jewelry park and retain the investors in the market and infuse more funds in the market which included T+1 • Attracting investment of INR 20,000 Cr with 1K rolling settlement and 100% upfront margin Jewelry units RBI-RD Scheme for Investment in Government REITs Application Value Increase in Securities • Lowering of minimum application value by SEBI for investment • Scheme launched by RBI to make an investment REITs from Rs. 50,000 to Rs. 10,000-15,000 in government securities accessible to the retail • Enablement of market to be more accessible to investors small and retail investors Import Duty GST Adoption • Reduction of import duty by the government on • Increase in the services charges to 18% on the precious metals (Gold and silver) from 12.5% to PMS, ULIPs, and on term plans from 15% 7.5% during union budget FY22 • Increase in the tax from 3.75% to 4.45% on the Interest Rate and Stamp duty premium in the first year and from 1.875% to 2.25% in the second year on traditional savings and • No change in the interest rate on REIT at 4% in the Taxes & investment plans budget FY22 duties • Recommendation on reduction of stamp duty on property transactions by Ministry of Housing and Urban Affairs Note(s): REIT – Real Estate Investment Trust © 1lattice | 29 Source(s): RBI report, Press releases, Secondary research, 1Lattice analysis Agenda Investment Sector Overview Digital Investment Landscape Retail Investors in India Challenges & Government Initiatives Way Forward for Investment Way forward for investment Increased risk appetite, digitization and Internet penetration have paved way for the emergence and growth of new age investment options in India Investor portfolio Traditional New age investment options investment options (%) 5% 7% 10% 9% 12% 10% 8% Equity Fixed income Alternatives 5% 14% Equity Alternatives Fixed 44% Cryptocurrency Liquid assets income Real estate 67% 67% Liquid Digital gold Real assets NFT estate REITs and InvITs 34% 8% Conservative Balanced Aggressive • Inclusion of new age investment options like digital gold, REITs and InvITs, NFT, investors investors investors etc. by retail investors in their investment portfolio, due to: - Demographic shift dominated by millennials - Increased awareness Real Estate Alternatives (Gold, commodities, etc.) - Increased digitization and internet penetration Liquid assets • Increased risk appetite and shift of investor mindsets from savings towards Equity wealth creation, further escalating demand for new age investment options Fixed income (FD, PPF, etc.) © 1lattice | 31 Source(s); Press releases, Reports, Secondary research, 1Lattice analysis Way forward for investment India promises to be a significant market for NFT investments in future, with its market size increasing from INR 0.25B in FY22 to INR 2.02B in FY28 NFT investments • Introduction of NFT in India in 2015 NFT curation • Presence of anything digital such as music, drawings platforms etc. in NFT • Presence of nearly 5.02% of the total NFT marketplaces in the world, in India • Quickest adoption of NFTs by filming and gaming industries, due to India being a significant market for gaming and entertainment • More awareness generated due to emerging crypto-art platforms, news-making auction sales, and NFT marketplace promotion through influencing artists on social media platforms • Presence of more than 86 such startups in India currently • Top ones being Rario, Wazirx, Diginoor, and Next Meet Crypto exchanges with NFT marketplaces • Regulation on the NFT space by including the expression ‘Virtual Digital Assets’ into Section 2(47A) of the Income Tax Act, 1961, through the Finance bill, 2022 • Taxation on income arising from trading in such assets at the rate of 30% © 1lattice | 32 Source(s); Press releases, Reports, Secondary research, 1Lattice analysis Way forward for investment InvITs and REITs are turning out to be good choices for diversifying retail investor portfolios InvITs (Infrastructure Investment Trust) REITs (Real Estate Investment Trust) • Presence of 22 SEBI-registered InvIsT • Launch of REIT (Real Estate Investment Trust) by (Infrastructure Investment Trust) funds Government of India in 2019 to: currently, included publicly listed ones like: - Incorporate long-term yield capital into the - India Grid Trust - Power grid InvIT country - IRB InvIT Fund - NH Infra Trust - Increase private investments in real estate • Gain of traction as part of the National • Presence of 3 registered REITs currently, namely Monetization Plan Mindspace REIT, Brookfield REIT, and Embassy - Intention of government to lease assets Office Parks REIT worth INR 6T • Increase in popularity among rich investors, • Fund mobilization of INR 59B through REITs in who are considering investment options apart Apr-Nov 23 , reasons being attractive returns from the traditional, low-yielding debt and favorable policies instruments • Fund collection of INR 165B through InvITs in • Announcements by SEBI to attract retail Apr-Nov 23 as opposed to INR ~64B in FY23 investors to invest in this asset class like: • Reason for such high fund mobilization being - Reduction in minimum application value strong demand for infrastructure investment - Reduction in minimum trading units © 1lattice | 33 Source(s); Press releases, Reports, Secondary research, 1Lattice analysis Way forward for investment Cryptocurrency & digital gold have turned out to be good investment options providing financial inclusion and hedging against economic uncertainties Cryptocurrency Digital Gold • Presence of more than 230 crypto-tech startups • Mode of investing in physical gold in India with 15M+ retail investors • Buying gold digitally by making small • Provision of employment to nearly 50K payments, with ease of digital access from individuals by crypto-tech in India anywhere and at anytime • High rise in demand of gold ETFs since the • Growth in Indian crypto industry market by pandemic, which was earlier dented due to the 74.6% from 2017 to 2023 attractiveness of equity market • Presence of more than 19M crypto users in India • Gold ETF holdings of ~42T by Nov 2023 • Presence of 16 digital gold companies in India • Top 5 trending cryptocurrencies currently being with an estimated 5-6M active gold accounts Dogecoin, Bitcoin, Mask Network, Shiba Inu and Ethereum • Top trending digital gold platforms include Paytm, PhonePe, 5Paisa and SafeGold • Introduction of ‘Digital Rupee’ , on basis of blockchain technology to reduce the country’s • Revamping of ‘Gold Monetization Scheme’ dependency on traditional cash system launched in 2015 to mobilize the idle gold in • Imposition of taxes on virtual assets at 30%, households in 2023 providing recognition to cryptocurrencies as an asset class © 1lattice | 34 Source(s); Press releases, Reports, Secondary research, 1Lattice analysis Way forward for investment Improved financial literacy, reduction in unemployment rate and focus on new age investment options can boost growth in investment market Increase Financial Reduce New Age Fostering Tech- Boost NRI Literacy Unemployment Investments Enabled Solutions Investment • Heightened • Reduction in • ESG, InvITs and REITs can • Online investment • Arrival of economic financial abilities unemployment will give high returns, platforms are technologies and can cause general lead to more causing value for all expected to reach efforts from the economic growth cash-in-hand, thus stakeholders of US$ 12B in 2028 at a Indian government and an increase in boosting investment company 5.1% CAGR can boost the NRI the standard of investment in India • Problem of - Employees, suppliers • Emerging new trends living unemployment can and customers and integrated • Experts can help NRIs • Can lead to be solved by: AI-powered digital to ensure full - Government escalation of wealth investment platforms compliance with - Increased - Wider society management and will expedite the new Indian laws and for public-private including the diversification of and seasoned NRI taxation related partnership environment assets investors toward queries - Acceleration of digital investment • Regulation of funding in platforms cryptocurrency and agricultural and digital gold by rural sector government bodies can increase their trustworthiness © 1lattice | 35 Source(s); Press releases, Reports, Secondary research, 1Lattice analysis We are here for you Let us know how we can meet your business requirement? Abhilasha Jaju Director, Insights and Consulting E: abhilasha.jaju@1lattice.com For media queries, Vaishnav Kumar Rai please contact Manager – Corporate Communications E: communications@1lattice.com M: +91 782 794 4925 www.1lattice.com Disclaimer: This material has been prepared by 1Lattice, which is the trade name of Lattice Technologies Private Limited (“1Lattice”, “we” or “our”) with the intent to showcase our capability and disseminate learnings to potential partners/clients. This material can be referred to by the readers on the internet but should be referenced to 1Lattice, if reused or adapted in any form, or medium and on any forum. The frameworks, approaches, tools, analysis and opinions are solely 1Lattice’s intellectual property and are a combination of the collection of the best data we could find publicly, and the 1Lattice team’s own experiences and observations. 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