Ultra HNIs (UHNIs) exposure to equities has gone down from 45% in FY2015 to 39% in FY2016 due to a fall in Indian equities last fiscal, shows Kotak Top of the Pyramid Wealth Report 2016 prepared by EY.
“This year, the trend of increasing equity portions in ultra HNIs’ investment portfolio saw a reversal mainly due to the fall in Indian equities. Small-cap stocks, which were among the top picks and performers in the previous two years, took a hit this year,” states the report.
The stock markets had dipped due to a variety of reasons including global events such as a sharp fall in the Chinese stock markets in just three months and a drop in foreign inflows into Indian stocks. While increasing participation of domestic institutions countered the fall to an extent, the stock markets still saw a negative trend.
Realignment in the equity portfolio of ultra HNIs led to a corresponding rise in the other three asset classes (real estate, debt and alternate assets) lending stability to returns. In the debt market, tax-free bond issuances by public-sector undertakings like HUDCO, NHAI, and NABARD elicited a positive response from ultra-HNI investors.
Real estate
Real estate investments, which fell last year, saw an increase this time. The Real Estate (Regulation and Development) Bill of 2015, which came into force this year, is widely expected to ease concerns around project development and delivery and bring about transparency and accountability.
Commercial properties are the biggest and most stable attraction in the real-estate market for ultra HNIs, as they are proving to be more profitable than residential ones. Cities such as Mumbai, Bengaluru, Hyderabad and Delhi NCR are the hubs for commercial properties, with major domestic corporate offices and multinational companies opening their branches there. The residential segment is also expected to pick up but with a lag as the demand in small centres picks up on increased interest from ultra HNIs.
Commodities
49% of UHNIs invest more than 10% of their assets in commodities.
According to its survey of 225 UHNIs in 12 cities, 78% ultra HNIs prefer gold and silver for their commodity investments; out of these, 59% consider gold a good investment opportunity. Moreover, is traditionally they are regarded as auspicious.
Investment in gold varies from jewellery, coins, bars, to ETFs. Gold certificates and bonds are the latest additions to this list. Apart from gold, 19% ultra HNIs allocate funds to silver and 6% invest in energy commodities, which is the next emerging sector globally. In line with this global trend, commodity exchanges in India are also offering energy products as a trading opportunity to which the ultra HNIs are warming up and taking restricted exposure.
Sources of wealth
The survey revealed that the main source of wealth for almost half of India’s ultra HNIs is the success of the primary business. There was a decrease in the number of ultra HNIs whose primary source of wealth is through sale of business. In conjunction, these trends indicate that they are more interested in building long and sustainable businesses.
A quarter of the ultra HNIs have created wealth from the real-estate sector, while for others the primary wealth source is personal income and equity investments.
Entrepreneurs and professionals predominantly have a single source of wealth. However, inheritors tend to diversify from their established businesses, which has led to wealth augmentation from real estate for them.
A new category of entrepreneurs are also successfully investing in social entrepreneurship businesses that focus on sustenance. Due to their passion and vigor, the ‘impact investing’ segment is rapidly gaining ground in India.
India has close to 1.47 lakh ultra-high net worth households (UHNHs) as on March 2016 and this number is expected to go up to 2.94 lakh by FY 2020-21. UHNHs are defined as those with a minimum net worth of Rs. 25 crore.
Edited excerpts from Kotak Top of the Pyramid Report 2016.
