Where The Rich Are Investing

India’s elite club is growing at a fairly healthy clip. At 146,600, the number of high networth individuals in the country grew 7% in the last fiscal, though a few notches lower compared with the impressive 17% seen in FY15. India’s wealthy today, have an accumulated net worth of #135 trillion, which is a 5% growth over last year. In fact, according to Kotak Wealth Management, by FY21 that networth will jump to #319 trillion driven by ultra-High Networth Households from emerging sectors.

While the wealth generation cycle continues unabated, what is changing though, is the asset allocation mix. The one trend that is clearly visible is the steady decline in asset allocation towards realty. According to Kotak Wealth Management’s Top of the Pyramid report 2016, this is the 6^th consecutive year where the average allocation towards real estate in HNI portfolios has fallen to around 11% in FY16, even as it still remains the second-biggest source of wealth for most HNIs at 25% after their primary business. 

This year, folks, who historically have sworn by real estate, are exhibiting a sense of openness about looking elsewhere. Take the case of Aditya Bagri, whose last name is synonymous with a prominent breakfast cereals brand, or Woodland’s Harkirat Singh, who are investing in equities. According to Ambareesh Baliga, an independent market analyst, there is a reluctance to invest in realty given that the appreciation has been insignificant. “Today, HNIs are willing to put in money as long as there is a deep discount of at least 40%, but that is still location or builder specific,” he points out. A lot was riding on prices taking off from levels that were already unaffordable, which is the bane. “When it gets so expensive, rental yields at barely 2% is no reason to stay invested. In fact, being a tenant is the smarter option,” adds IAS Balamurugan, managing partner at Anicut Capital.

Regulatory change is also forcing HNIs to step back. The Real Estate (Regulation and Development) Act, 2016 is changing the way developers have been doing business. “Given that it will take time for REITs to emerge as an alternative mechanism to invest in the sector, clients are becoming a bit more cautious and opportunistic about the asset class,” reveals Shiv Gupta, founder & CEO, Sanctum Wealth Management.

This year, according to the Kotak Wealth report, 59% of ultra-HNIs surveyed increased their investments in their primary businesses and 43% saw a decrease in their overall savings. Balamurugan says, “There are not many opportunities in debt. Interestingly, this comes at a time when liquidity is high.” Though fixed income remains a staple across portfolios, HNIs, including business families, are looking at investment avenues beyond their business. “Earlier, the approach in the past was about running an operating business, leaving almost no time for serious investing. But that’s changing. Now, promoters and many HNIs are speaking of actively investing,” mentions Balamurugan, adding that IPOs this year saw high oversubscription by HNIs.

Though alternatives as an asset class continue to be in vogue, the appetite that was till recently evident is slowly waning. Cut to last year, where investing in start-ups or getting a chunk of the e-commerce story was the most obvious story, today the clamour to hop on to the bandwagon is not all-pervasive.  “Even at the peak, only small amounts were invested, but now we could see a decline in deals,” explains Baliga. 

Gupta concurs that equities are finding favour of late with clients. In fact, private wealth advisors who were part of Outlook Business’ Annual Wealth Roundtable, too, mentioned that they remain optimistic about equities in the coming year, though Gupta says tactically that some portfolios, to manage volatility in the short term, could be neutral or underweight equities. Despite global concerns, the Sensex is up 10% in FY17 till date. Amid the uncertainty, the equities story may not sound compelling but given that the performance of other asset classes has not been spectacular either, equities may just continue its good run.