Where the rich are investing

In his spacious office at Nariman Point, once Mumbai’s most-sought after business district, scion Arihant Patni oversees his family office. “Our objective is capital preservation and growth,” says the 39-year old. Most of the family office’s wealth came from the sale of Patni Computer Systems, founded by his father Gajendra Patni and his two brothers Ashok and the late Narendra, to Nasdaq-listed iGate Corp for $1.22 billion in 2011. That marked the exit of the family from India’s first major IT services company.

Even as the likes of Patni are slowly warming up to the idea of a family office, wealth generation in the country continues with the total number of high networth households rising by 17% in FY15 to 137,100 controlling over ₹128 trillion of assets. While the wealth club’s asset allocation broadly remains the same, there is a fair bit of reallocation happening, especially in the alternatives category. Start-ups are red-hot in the alternatives space, with Ratan Tata, chairman-emeritus of Tata Sons reportedly having invested ₹20 crore in 10 start-ups, the biggest being ₹10 crore in Snapdeal. 

The fever is spreading to others as well with Patni, for instance, now having set up an independent VC fund which has already made eight investments in internet start-ups. “In alternatives, we look at real estate, gold and currencies, but, of late, we are focusing on private equity and venture capital deals too,” explains Arihant, who is the managing director of Patni Financial Advisors.

Putting the investments in perspective, Arihant says, “When we sold our holding in Patni, it was a company that had created a successful disruptive model in software outsourcing. We would like to back people today with such ideas.” Concurring with Arihant is IAS Balamurugan, co-founder of Metis, the Chennai-based firm that offers advisory services to family offices. “It is  relatively new in India, but HNIs seem to like the concept of early stage or angel investing,” explains Balamurugan, whose clients down south have entered into similar transactions.

For now the flavour of the season seems alternative, but the thirst for equities remains unquenched. In fact, the allocation of HNI wealth towards equities is at a five-year high of 45%, according to Kotak Wealth Management. “With oil prices remaining soft and government finances in better shape, clients believe that equities will do well over the next couple of years,” adds Balamurugan. “As I speak, half of our allocation is in equities, followed by fixed income,” adds Arihant. Then there is Rashesh Shah, co-founder, Edelweiss Financial Services, whose entire wealth is invested in his company. “Invest in equities like you own the business and then see the magic of compounding,” points out Shah, whose personal holding in Edelweiss, which he started in 1996 is worth over ₹840 crore.

Interestingly, in contrast to the rising interest in equities, HNIs are veering away from real estate with their wealth allocation hitting a five-year low at 25% against 37% in FY11. The slowdown in the residential segment, which accounts for over 80% of the overall real estate market, is prompting the ultra-rich to look at commercial real estate or look at investing outside the country.

And the one destination that is grabbing attention more than ever before is Dubai. In the current year itself, Indians have invested over $2 billion. Sanjay Manchanda, CEO, Nakheel Properties, the property developer behind projects like Palm Jumeirah in Dubai, is clear that there are more buyers today. “With growth in India not playing out as expected, HNIs are open to investing in Dubai. With rental yields at 8-10% (tax-free) compared with barely 2% in India, it makes for an interesting option,” explains Manchanda, who was recently in India hardselling Nakheel’s new properties to prospective buyers.

Though ASK Wealth Advisors MD Rajesh Saluja agrees that capital values have gone out of whack at the luxury end in India, he believes there is money to be made. “No doubt there is stress in the real estate market, but our strategy of acquiring quality assets with good developers in the mid-income housing segment in the top five cities is working very well for us and has helped us generate return of over 25% per annum,” points out Saluja.

For now, HNIs are looking at ways to multiply their wealth by actively reallocating resources across asset classes, so while the lure of real estate is dwindling, the alternative space seems to be catching their fancy while equities remains the most favourite. At 2-3%, their allocation is still miniscule but clearly that is changing with every passing year. Only time will tell, whether it’s for the better or worse.