Thanks to the improved outlook of returns from equity markets and the 25% rise in Sensex in FY15, ultra HNIs have shifted their preference from real estate to equity. Due to the relative attractiveness of equity, their preference for real estate is waning, says a Kotak Top of the Pyramid Wealth Report 2015 prepared by E&Y.
From 38% in FY14, ultra HNIs allocation to equity has increased to 45% in FY15. Their allocation to real estate has dipped from 29% to 25% during the same period. The report says that the preference for real estate will continue to be weak for some time due to the stagnancy in the real estate market. However, they are optimistic about the revival in the real estate market. A survey conducted by Kotak shows that 68% expect the real estate sector to bounce back.
As regards the sectoral preference in equity, ultra HNIs preferred to invest in banking and infrastructure sectors. A large majority of the ultra-rich (55%) preferred investing in the banking sector followed by infrastructure (53%). Within the banking sector, they preferred to invest in mid cap stocks (48%), followed by large and small cap stocks. The preference was somewhat similar for infrastructure stocks too – large cap (48%) and mid cap (44%). Like other investment classes, ultra HNI’s expectations of returns from equity increased with the increase in tenure. The survey showed that they expect a return of 5% for short tenure (up to six months) investments, up to 15% for one year and more than 20% for investments tenure of five years.
After banking and infrastructure, IT, automobile and consumer products were their most preferred sectors. Due to the fall in global oil prices, the energy sector was the least preferred by the ultra-rich.
The report says that while investing directly in stocks was the most preferred way to participate in markets, ultra HNIs are increasingly investing through mutual funds.
Venture Capital
The booming e-commerce sector has become has caught the attention of ultra-rich investors. 40% of ultra-rich preferred to invest in IT and e-commerce industry through PE investments and 39% of them preferred to invest through venture capital (VC) route. After technology, real estate and financial services were the second and third most preferred sectors for investments through PE and VC route.
The survey was conducted among 225 ultra HNIs as face to face interview in 12 cities. Ultra-high net worth household is one which has a minimum net worth of Rs. 25 crore.
