Alpha Ideas

Source: Indian Hotels Annual Report 2016-17

Source: Edelweiss Conference Call Transcripts Q4FY17

See, the good thing about both Asset Management and Wealth Management is that there is an organic growth because the assets also appreciate. So the average if you see, a 10% to 12% asset appreciation in both Asset Management, Wealth Management is there for everybody.

And then there are fresh assets coming in. So to give you an idea, our estimate is that the current assets under advise for the whole Wealth Management industry is close to about Rs.700,000 crores odd business, Rs. 700,000 crores to Rs. 800,000 crores, which is close to about $120 billion to $130 billion in India.

If you look at most of the other countries which have gone through this development phase, I think our long-term idea is that it ends up being
somewhere between 40% to 50% of our GDP.

So, to give you idea, you are supposed to be 50% of GDP even now, it should be $1.2 trillion, which is currently of only $120 billion.

So,we do think that as GDP grows, like to give you an idea, US assets under advice of Wealth Management industry is 85% to 90% of the GDP, we are expecting in India it should be between 40% to 50% on GDP over the next eight to ten years.

So, we do expect that not only it will grow with the GDP growth but also the percentage of GDP will grow from currently what we think is only about 5% of GDP to at least 40% of GDP over 10 to 15 years, I do not think this will happen overnight. And given that, when you do the math, I think expecting a 30% growth of this industry over the next five, seven years, we do think it is possible.

Oil prices have consistently kept moving  up over the past quarter, with Brent now almost $70 per barrel.

The rise is due to coordination between Saudi, Russia and Iran, combined with strong demand linked to the recovery in global growth. 

The reduced investment over the past few years may also be taking a toll, as shale oil/gas has far sharper depletion rates and thus greater capital intensity. 

A rise in oil prices also sucks out liquidity from markets. The world consumes about a 100 million barrels of oil per day. Assuming 100 days of inventory in the system, a $20 rise in price needs $200 billion of additional working capital. Some of this liquidity will get diverted from financial markets.

Rising oil prices combined with a tightening Fed is not normally good for financial assets.

Both suck liquidity out of financial assets

– wrote Akash Prakash,Amansa Capital