India’s ultra-high-net-worth individuals (HNIs) have not shown signs of cutting down on their spending on luxury goods and services despite the current economic slowdown, but they have turned cautious in their investments, according to a new study by Kotak Wealth Management and CRISIL Research.
“The second edition of the ‘Top of the Pyramid’ report has thrown up some interesting trends in various behavioral aspects of the ultra HNIs,” said C. Jayaram, the joint managing director of Kotak Mahindra Bank Ltd. “While, overall, this segment seems to be relatively unaffected by the slowdown in Indian economy, their patterns in spending, investing and savings present huge opportunities…”
The number of Indian ultra-high-net-worth households (HNHs) is estimated to have grown by 30 percent year on year to around 81,000 in 2011 and is expected to triple to around 286,000 over the next five years, the report stated. Consequently, the net worth of HNHs is estimated to surge five-fold from an estimated $1.17 trillion in 2011 to $5.73 trillion by 2016, the report said. More than 50 percent of HNHs reside in the four main metro cities, while the next top six cities account for around 12 percent.
The study noted that apparel and accessories showed highest increase in purchases followed by vintage spirits/liquor, jewelry and diamonds, luxury watches and household electronics. It also revealed that the destination weddings were the in-thing in 2011 but these appear to have lost their appeal this year since the trend was catching up among other sectors of society
Instead, throwing lavish parties for ad hoc events such as business success or launch parties has become a new area of spending. Some HNIs also cut down their spending on charity in order to maintain their lifestyle. The report further highlighted that exclusivity is a major driving force behind luxury car purchases and even established brands are not considered because they lack exclusivity or are seen as mass-market luxury cars. With an increase in the number of youth among the HNIs, the preference for cars that project a youthful image and models that are seen as exclusive is growing steadily. The high-end luxury cars from Japan are still preferred for regular use as they are seen as most suited for India’s roadways. SUVs/crossovers continue to be the most preferred car among HNIs.
“The fact that so many HNIs said that their spending habits have not changed due to the slowdown is an indication that they do not expect the slowdown to continue for long,” said Mukesh Agarwal, the president of CRISIL Research. “However, it would be interesting to see whether the caution that has crept into their investments will spill over into their spending if the economic crisis persists longer than expected.”
The reported noted that HNIs have turned very cautious on investments as their focus concentrates on capital protection and low-risk financial instruments. Real estate investm
ents have declined compared with 2011 although its share among asset classes remains relatively high since HNIs expect healthy returns over the long-term. But generally the appetite to take risk was subdued, with greater preference on a disciplined approach rather than an opportunistic approach, particularly in high-risk instruments.
CRISIL defined an HNH as one having a minimum average net worth of $4.5 million (INR 250 million) essentially accumulated over the past 10 years and according to its analysis has a minimum income of $630,517 to $720,590 (INR 35 million to INR 40 million). The survey, which took place between December 2011 and April 2012, interviewed about 150 HNIs. The respondents were spread across Mumbai, Delhi, Bengaluru Hyderabad, Chandigarh, Ahmedabad, Vadodara, Chennai, Pune, and Kolkata
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