Super Rich Indians now invest in Equity and Donate more

Even if the Indian economy has been making valiant attempts to recover and get back to 9% GDP growth rate, the growth rate of Ultra High Net Worth Households (UHNHs) in India is a whopping 16 per cent. According to Kotak Wealth Management’s ‘Top of the Pyramid’ report, UHNHs in India have now gone up to 117,000 in from 100,900 last financial year and it expects this number to triple over the next three years. The report, covering the period 2013, attempts to encapsulate the ‘Ready for Change’ mood of India’s UHNHs, in the context of emerging changes across the economic, environment and political landscape of the country. Ernst & Young worked on this report with research and data collected by talking to 150 UHNIs (Ultra High Networth Individuals) across multiple cities as well as luxury service providers such as luxury travel companies, luxury watch companies, jewellery companies, and even wealth management relationship managers

According to the report, UHNIs are now optimistic and willing to take risks, which is reflected in the way they spend. A substantial amount of their spends lies in the realm of Luxury Travel, Philanthropy and Investments.

 The report estimates that the net worth of UHNHs will surge at an annual compounded rate of 34 per cent from an estimated Rs. 104 trillion (Rs. 104 lakh crore) in FY 2013-14 to Rs. 408 trillion (Rs. 408 lakh crore) by FY 2018-19.

The report categorises India’s rich in three segments – Inheritors, Entrepreneurs and Professionals. Inheritors and Entrepreneurs prefer re-investing about 20-25 per cent of income into their primary business whereas Professionals prefer savings and personal investments.

The report states that there is a significant increase in spends - growing from 30 per cent of total income in 2012 to 44 per cent in 2013. Spending on Jewellery (16 per cent), Apparel and Accessories (15 per cent), followed by Luxury Travel (14 per cent), indicates family-orientation in expenditure planning.

Geographically, around 45 per cent of current UHNIs reside in non-metro cities and smaller towns and trends show their numbers are increasing over the last few years. There are more UHNIs emerging from non-metro cities and the earlier trend of only metro cities producing billionaires is no longer true.

According to C. Jayaram, Joint Managing Director, Kotak Mahindra Bank Limited, “India’s super rich are moving out of their comfort zones to put more monies in the rare and the risky – exotic food, private equity and even space travel. While exclusivity is the mantra for personal and family expenditures, they are equally interested in giving back to the society by supporting a variety of social causes. ”

“HNIs are now warming up to equities as compared to the lull or sideways movement that we saw for last five years. The perceived risk has subsided and it is more to do with the hope that the country sees in structural reforms the new government will deliver. Today, UHNIs are in strong contact with people globally and we realize India is gaining more traction among emerging markets,” adds Mr. Jayaram.

Murali Balaraman, Partner – Advisory Services, Ernst & Young, added, “The optimism of changing environment is reflected in the aspirations of UHNIs as their spend get more luxurious and investment more exotic. We expect a continued momentum in the positive trend and even further acceleration, with UHNIs being an ever alluring segment.”

The super rich are ready to experiment with their travel now, there is a growing interest in polar expeditions and even space travel. A change in trend on travel the report notes is that UHNIs now take more short duration holidays than a few long stay ones. Nearly 50 per cent of ultra HNIs make at least three luxury trips and about 33 per cent spend over Rs. 25 Lakh in a year for leisure. But this has meant that there is a decline in the average number of days per trip though the corresponding number of trips taken by the ultra-rich has risen.

Where the Rich Invest
According to the ‘Top of the Pyramid’ report, UHNI segment’s outlook towards the economic environment has now turned positive and they intend to invest in equity as opposed to debt. Their allocation to equity has increased from 35 per cent in 2012 to 38 per cent in 2013, with a corresponding reduction in debt investments to about 24 per cent. Income statements of UHNIs reflect a growing share of returns from real estate in addition to their primary business, followed by equity.

PE (Private Equity) investments have seen a rise in the investment patterns of the super rich. With increased optimism on the economic front, their appetite to take risk has gone up. About 26 per cent of UHNIs surveyed have allocated some part of their total investments in PE, expecting higher returns. IT, Pharma and Real estate emerged as preferred sectors for PE investments, with over 53 per cent UHNIs preferring exposure to the real estate sector, followed closely by Information Technology (43 per cent) and then Pharma (42 per cent).

Lending a Helping Hand
The rich have moved beyond spending only for themselves and indulge in buying villas, super cars as well as personal jets. There seems to be a maturity now reflecting in the way the rich spend. Inspired by Bill Gates and Warren Buffet in the West and by Azim Premji and Shiv Nadar back home, over 60 per cent of UHNIs surveyed are now engaged in philanthropic and charitable activities, and have made spends on charity as part of their annual spends. Education is the most supported cause by UHNIs across the board followed by ‘food for poor’. They don’t trust unknown or smaller NGOs, and largely depend on established NGOs or form a personal foundation or a trust for their personal giving.
 

Key Highlights of the Top of the Pyramid report:

• Number of Ultra High Net Worth Households (UHNHs) increased by 16 per cent to 117,000 in FY 2013-2014 from 100,900 in FY 2012-2013
• Metros dominate with 55 per cent of UHNH and the next top six cities (Bengaluru, Pune, Ahmedabad, Nagpur, Hyderabad and Ludhiana) account for 16 per cent share
• The Super Rich are now optimistic about the economic environment and hope for a stable political environment, this has triggered an increase in expenses from 30 per cent in 2012 to 44 per cent in 2013
• Equity and Real Estate investments overtake debt now with a stable government at the centre
• 26 per cent of Ultra High Net Worth Individuals (UHNIs) surveyed include Private Equity (PE) investments in their portfolios; Real Estate and IT emerge as top two sectors , and e-commerce is a new favourite on the PE investment block for UHNIs
• Over 60 per cent of the UHNIs surveyed consider philanthropy while planning annual expenditure;  education (86 per cent) followed by ‘food for poor’ (79 per cent) get preference