India’s community of high-net-worth individuals is growing fast and, for them, the most favored form of investment is gold.
The HNI population in India rose by around 20.86% in 2018, and their wealth is estimated to have grown by more than 11%, to $530 billion. India is one of the fastest growing HNI segments in the world, currently contributing approximately 1.2% to the global HNI wealth.
“The number and wealth of the ultra HNIs has leapfrogged in the last decade. With an estimate that in the next five years, there would be about 219,000 such households, up from the current 62,000 households, their net worth is also expected to grow five times,” says Rupesh Nagoria, product head at broking firm, Alchemist House.
And, importantly, while their assets are growing the members of this class are also getting younger.
The average age of Indian high NetWorth individuals (HNIs) has fallen to the mid-40s from the early 50s in just five years. Though precious metals still hold the roost, Indian HNIs are experimenting with a gamut of investments, from fixed income instruments, commodities to art and private equity firms.
But, with equities in India looking overvalued, wealth managers are setting their eyes on the yellow metal.
“We have been advising clients to invest in gold since the last one year. The interest has tremendously shot up during the last few days, with the festive season coupled with the marriage season. The allocations have certainly gone up from less than 1% to 5% of our clients’ portfolio,”.
Bullion advisor at investment firm, Wealth Management
Manish Bhatia of Religare Macquarie Private Wealth said that around five years ago, people did look at art or films funds as an alternative investment option. “It turned out to be too exotic for most. Not many are looking at these as investment options now, and have moved to less riskier options like gold,” he adds.
Adding that Indian gold prices are highly correlated with international prices, he said the fluctuations in the Rupee-US Dollar impact domestic gold prices and have to be closely followed by most HNI investors.
Investment in gold is expected to continue to be the largest and preferred investment class, at least in the next couple of years.
According to Nagoria, most investors typically look at protecting their wealth and making real returns. “They tend to take a higher risk in their business and want their investment portfolio to be comprised of safer assets. They also like to maintain close control over their assets, and gold affords them that ease,” he said.
Investment bankers added that though a wide range of better regulated investment options have made their way into the financial marketplace over the last decade, the sheer complexity of these options, in terms of inherent risks, benefits and objectives, has got the average investor more confused than ever.
At such a time, most HNIs prefer to invest in gold and leave the headache to someone else, added Nagoria. Most analysts are positive on the precious metal for two reasons: the dollar depreciation and the sword of inflation in India.
“Gold is an asset class which can give one easily more than 10% stable returns annually. We advise our HNIs to go for gold or even gold ETFs for ease of saving,” said Bhatia.
Investors, specifically those in the ultra HNI category, invest significantly in gold. “They do not consider buying jewellery for investments. Instead, they prefer investing in the form of ETFs and bars. Most brokers tend to recommend ETFs to their HNI clients, as there is a problem of storage with bars. Gold bars cannot be sold in the open market in India and in most cases, the seller himself will not buy it back,” said Shailesh Manthan, bullion retailer.
With the country’s savings rate expected to stabilise at 35% levels going forward owing to high economic growth, HNI investors are expected to continue to show robust interest in gold as an asset class.