Wealth firms eye a pie of India's startup boom

The ultra-rich have started looking at small and mid-sized companies.

Indian investors including private creditors are increasingly taking a chance on startups despite global headwinds, betting that they could become the next unicorn or future large cap.

An “entrepreneurship culture” has seized India’s business space, and with it comes investment opportunities through private credit and late-stage investments, Nitin Rao, CEO at InCred Wealth & Investment Services Private Limited, told Asian Banking & Finance. 

“It’s a very different market now,” Rao, who was head of HDFC Bank’s private banking business before joining the Mumbai-based wealth management company, said via Zoom.

“Earlier, the market was dominated by financial institutions and institutional investors,” he said. “Now, high-net worth and ultra-high net worth segments are looking for private equity opportunities that will give them exposure to small and mid-sized companies.”

Rao expects assets under management by the wealth management sector to continue expanding, driven by people investing their savings in financial products like stocks, mutual funds and bonds away from physical assets like gold, property and cash.

“India was a real estate-based investment economy, [but] that shift happened from real estate to equity,” he pointed out.

Digitalisation will drive wealth management activities and the popularity of nonbank wealth management players like InCred Wealth, Rao said. “Investing has become very easy,” he said, noting how social media has helped spread investing knowledge.

“All these have ensured that a lot of money from various segments — whether its retail investors or high-net worth individuals or the masses — started flowing into equity markets,” he added.

India has the third-biggest startup space in the world, with more than 157,000 startup certificates recognized by the Department for Promotion of Industry and Internal Trade as of December 2024.

With more than 100 unicorns — startups valued at over $1b — investors increasingly want to take part in what Rao calls “entrepreneurship opportunities” that banks normally shun. That’s where private debt and private credit come in.

Through private credit, investors can get exposed to an e-commerce or new age power generation company, or even an electric vehicle business. 

At the start of the year, the focus shifted to private debt, Rao said.

“People are looking at reallocating their debt returns,” he said. “People have become more cautious. They want to participate in the upside, but they also want to be protected from downsides, which is where [structured products] are coming up, or vehicles like hedge funds or option strategy-based products.”

Meanwhile, there has been little movement in the environmental, social, and governance (ESG) space amongst Indian investors.

“We don’t see a specific focus and interest in ESG investments in the broader market specifics,” Rao said.

Rich families whose members have gone abroad or whose children have studied overseas are more likely to be interested in ESG investments, he added.

Diversification is key for investors seeking to pool their funds, Rao said. He said they should start small, perhaps putting 80% in conventional stocks and the rest in riskier early-stage or late-stage investments.