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Where The Rich Are Investing
Outside of their own business, equities and startups have emerged as the primary financial assets of the rich and the famous. Structured debt is no longer in vogue.
Kripa Mahalingam

We all know equities are a volatile asset class. Particularly, over the past year, the trading floor has not been for the faint-hearted. From an all-time high of 40,268, post elections in June, the Sensex fell nearly 10% as foreign portfolio investors turned sellers after the finance minister introduced higher tax rates amid worries of an economic slowdown.

The sentiment improved in September, when the government slashed the corporate tax rate from 34.94% to 25.17% — the Sensex soared by 5%, its biggest decadal, single-day gain. It seems to have been a sugar high because, FY20 again looks gloomy. Everyone including the central bank, institutions and rating agencies are downgrading GDP growth estimates to 5.5-6.1%. However, the market remains buoyant, trusting that the reform process will continue and lower tax rates will lead to higher earnings.

While the lesser mortals were tossed about in the last fiscal’s storm, the rich only got richer. According to the IIFL Wealth-Hurun Rich List 2019, the number of Indians with a net worth of ₹10 billion has grown to 953 this year from 831 in 2018. The combined wealth of the top 25 was equal to 10% of the GDP, and the combined wealth of the entire list was more than one-fourth of the country’s GDP. According to Credit Suisse’s Global Wealth Report 2019, the number of dollar millionaires in India has increased from 34,000 in 2010 to 759,000 in 2019. Ka-ching! If you are feeling a little left out, you are not alone. According to the same report, only 1.8% of the population has a net worth of $100,000, whereas 78% has wealth below $10,000.

Putting aside the inequality, wealth creation has more or less mirrored the nominal GDP growth over the past five years. According to a report by Karvy Private Wealth, individual wealth grew from ₹2.8 trillion to ₹4.3 trillion, clocking an average annual growth of 11% with people saving more in financial assets. “Over the past five years, we have seen the share of financial assets increase from 57.25% to 60.95% in 2019. That trend is likely to continue over the next five years and we estimate the share of these assets to go up to 66.11% by 2024,” says Abhijit Bhave, CEO of Karvy Private Wealth.

While personal wealth in India has largely been held in realty and other real assets such as gold, investors are warming up to more liquid and income-generating assets. Even in real estate, there is a definite slant towards commercial property, which offers a yield of 7-9%, way better than the 2-3% yield on residential ones. “Earlier, ultra HNIs used to buy properties pre-launch or during the launch and sell the property on completion, and make money from arbitrage. But after burning their fingers with some residential projects, they are now only comfortable with completed and occupied commercial office spaces that offer a stable income,” says Anuj Puri, chairman, Anarock Property Consultants. According to him, a lot of family offices are also drawn to REITs that offer a regular income stream. While he expects commercial real estate and affordable housing to continue to do well, he says any recovery in demand for luxury residential projects is about 12-18 months away.

Not surprisingly, entrepreneurs are inching away from real estate and choosing to bet on themselves. Take the case of Monish Gujral, MD of the restaurant chain, Moti Mahal, who has stayed away from realty over the past four to five years because it has not yielded the returns his business gives. Gujral recalls that 10-12 years ago, you could buy a property and dispose it in six months. It’s not so anymore. Patu Keswani, founder of Lemon Tree Hotels, has put 98% of his wealth in his own venture. “It has been the best compounding machine that I have ever invested in,” he says. Keswani today is worth over ₹15 billion, given his family holding of 31.32% stake in the chain. He had been hoping to retire at 40 with ₹50 million, now he has 300x that.

Businesspersons know that sticking close to what they know well generates the best return. So, apart from investing in their own business, they are now backing other promising entrepreneurs. And why not, they know the drill and can leverage their experience to scale up their portfolio companies. Take the case of India’s youngest billionaire, Vijay Shekhar Sharma, who at the age of 41 is estimated to have a net worth of ₹130 billion. He says that he doesn’t really have a structured approach to wealth creation. “Get me a great idea with an enterprising guy behind it, and you will have me hooked,” he says. He has invested in around 25 other startups including Dimension NXG, GOQii, Unacademy and InnerChef, apart from being a limited partner in a couple of venture funds. Similarly, serial entrepreneur K Ganesh and his wife Meena Ganesh launched GrowthStory, an entrepreneurship platform that promotes and runs start-ups. Today, they run 14 companies in the consumer-internet space including online grocery unicorn Bigbasket, online jeweller BlueStone, home healthcare provider Portea Medical and online food ordering platform FreshMenu, collectively valued at around $2 billion.

Despite the capricious equity market in the short term and the lacklustre economic growth predicted in FY20, India’s long-term wealth creation potential looks intact. In fact, Credit Suisse predicts that India will see a significant increase in its wealth and add $4.4 trillion, an increase of 43% in just five years. Much of it is likely to come from equity markets and that’s why market veterans such as Ramesh Damani and Vijay Kedia still swear by the stock ticker. Damani, who has about 85% of his total assets invested in equities, tells us that the returns from equities are unmatched — the Sensex has given a whopping 16% CAGR return over the past 30 years. There aren’t too many options available in the market. While there was a marginal increase in overall debt allocation due to fall in yields over the past of couple of years. Portfolio managers say with interest rates likely to remain stable, gains from debt are limited from here on. And post the IL&FS crisis, investors are a little more wary about debt. Gold which has always been a traditional favourite, is losing sheen as investors move toward income generating assets. As India is working towards its dream of being a $5 trillion economy, Bhave expects the Sensex to reach 100,000 by 2024.

Of course, in the short term, equity markets will remain unstable, particularly if there is a global slowdown or there are more domestic shocks. “The risks are more global in nature. A slowdown in the US or an escalation in the US-China trade war will definitely have a negative impact. As far as the domestic economy is concerned, if we have some skeletons falling out in terms of unknown bad loans, that could definitely pose a problem,” says Sunil Sharma, executive director of Sanctum Wealth Management. But Kedia says it’s probably best to enter the market when it is choppy. And one look at his track record, you realise he knows what he is talking about. If you want to get anywhere close to the rich list, maybe it is time you follow his advice.

Vijay Shekhar Sharma

Founder, Paytm

At 41, he is the youngest Indian billionaire with a net worth of ₹130 billion. Mind you, that’s solely based on the 15.4% and 8.2% stake that Vijay Shekhar Sharma holds in Paytm and Paytm Mall. His 51% stake in Paytm Payments Bank has not been assigned a value yet.

Many will proudly proclaim that hard work and persistence are what brought them prosperity, but the founder of Paytm is candid enough to admit that luck too has played a big role. Living in the posh South Delhi neighbourhood, Sharma recounts the days when he bought his first vehicle, a second-hand Maruti 800. “I bought it from a friend for ₹10,000 and drove that car for four years,” he says and reveals that he then gave that up for another used car, but a slightly upgraded one — Honda City for ₹11,000. Clearly, he always knew the value of money. Today, the billionaire is a proud owner of a Beamer and a Mercedes.

While the thrill of wheels is something that keeps Sharma going, what excites him is backing other entrepreneurs — they can each be as different as chalk and cheese. He has invested in 25 start-ups including Dimension NXG, GOQii, Unacademy, and InnerChef. “My ticket sizes for an investment can vary from a few hundred thousand to millions,” explains Sharma. This journey began in 2010, when he first invested in social venture platform Milaap. Though sector-agnostic, what’s notable in his portfolio is the presence of three media start-ups: ThePrint, The Ken and FactorDaily. Just like he knows how to spot good investments, he knows how to make profitable exits like he did with DealStreetAsia and Innov8. His latest investment was in the seed round of Kawa Space, a space-tech start-up, in September. “I don’t have any return expectation in mind. It’s all about investing in the future,” he says, adding that he does not seek the advice of any expert before deciding on these.

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November 22, 2019

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