India's Alternative Investment Market Set to Grow Five-Fold by 2034

India's alternative investment market is on the verge of a huge transformation with projections indicating a five-fold growth in assets under management (AUM) from the present scenario of about $400 billion to $2 trillion by 2034.  This predicted growth and expansion showcases a paradigm shift in the investment choices and preferences of high-net- worth individuals (HNIs) and institutional investors, who are consistently looking for avenues beyond traditional assets to enhance returns and diversify portfolios.

Understanding Alternative Investments

Alternative investments basically involve a broader spectrum of asset classes. These are not similar to the traditional categories like stocks, bonds, and cash. Instead these include investments that are unlike traditional categories and offer excessive potential returns. Alternative Investments are entirely focused on private equity, venture capital, hedge funds, real estate, commodities, and some other structured financial products. These kinds of investments are considered as the better risk-reward profiles, lower liquidity, and a greater degree of complexity that makes them profitable, worthwhile and  suitable for sophisticated investors aiming for portfolio diversification and better alpha generation.

The Current Landscape of Alternative Investments in India

As of 2024 presently India's alternative investment market stands at about $400 billion in AUM and we can think of that these investments also have SEBI-registered Alternative Investment Funds (AIFs) that are worth around USD 130 billion and other alternative funds amounting to USD 270 billion. The market has presented a consistent significant rise in interest from different categories of investors, particularly from majorly excessive high-net-worth individuals (HNIs) and extremely ultra-high-net-worth individuals (UHNIs), who're increasingly seeking out investment alternatives beyond traditional stocks, bonds, and cash and other traditional investments.

This marketplace featured diverse segments comprising private equity, venture capital, real estate, and hedge funds. The increased growth trajectory path arises and has showcased strong performance with a compound annual growth rate (CAGR) of 27% over the past five years.

Drivers of Growth in India's Alternative Investment Market

Several factors are propelling the expansion of alternative investments in India:

• Increasing Wealth Among HNIs: The growing affluence of India's HNI population is main to demand for extra sophisticated and assorted diverse investment avenues. As investors are seeking to optimize returns and manage risks, alternative assets provide appealing opportunities.
• ​Regulatory Support: The Securities and Exchange Board of India (SEBI) has carried out innovative and progressive rules to inculcate the growth of alternative investment funds (AIFs). These measures have stronger transparency, governance, and investor safety, thereby boosting confidence & trust in alternative assets.
• Portfolio Diversification:  Investors are more and more spotting the advantages of diversifying their portfolios beyond the traditional assets. Alternative investments offer exposure to unique different risk factors and also the reward as return profiles, aiding in risk mitigation and return enhancement.
• Superior Returns: Historically, alternative investments have verified the potential to deliver better returns compared to standard traditional asset classes. This performance has attracted investors searching to outperform conventional markets.

Projected Growth and Future Outlook

The projection of a five-fold increase to $2 trillion by 2034 indicates a CAGR of approximately 12.2% over the next decade. This increased growth is anticipated to be driven by continued consistent wealth creation, growing investor sophistication, and the development of recent alternative investment products tailored to the evolving needs of the investors.

Implications for Investors

The burgeoning alternative investment market in India presented several implications for investors:

• Enhanced Opportunities: The wider segment of  investment opportunities could become available that  allows investors to tailor portfolios based on specific risk-return options and requirements.​
• Need for Due Diligence: The intricacies and risk associated with alternative investments necessitate thorough due diligence and the requirement of deep understanding of the underlying assets.
• Professional Management: Engaging with experienced fund managers who possess expertise in alternative assets will be crucial for navigating this evolving landscape.

Major Segments in Alternative Investments

1.  Private Equity and Venture Capital: These segments are predicted to account for a sizable part of the alternative investment market. Having a current valuation of USD 250 billion, private equity and venture capital investments are set to develop as greater startups and emerging agencies are looking for funding.

2. Real Assets:   Real estate property and infrastructure investments are gaining traction, with a  present market size of USD 125 billion. These assets offer stable returns and are less volatile compared to traditional equities.

The Role of Technology

Technological improvements and advancements are representing a pivotal position in the surging growth of the alternative investment market. Digital platforms and fintech solutions are making it easier for investors to access and manage diverse alternative investments. These technologies offer real-time records, enhance transparency, and streamline investment processes.

The Impact of Global Trends

India's alternative investment marketplace isn't isolated from worldwide trends. The worldwide opportunity in the alternative investment marketplace has presented phenomenal growth from 10% to 20% of total global assets under management (AUM) between 2005 and 2020. This trend is reflected in India, wherein the market is expected to observe a comparable increase in growth trajectory. The convergence of global trends and local market dynamics uniquely positions India for tremendous enlargement within the alternatives market.

Conclusion

The expected expansion of India's alternative investment market to nearly about $2 trillion by the year 2034 displays a tremendous shift towards the investment landscape. Driven by increasing wealth, regulatory support, and a quest for diversification and higher returns, alternative investments are set to play a pivotal position inside the portfolios of sophisticated traders and investors. As the market evolves, it will offer more desirable opportunities, necessitating informed mindful decision-making and expert management to capitalize on the potential benefits.