Business

‘HNIs invest in stocks, stay off fixed income, real estate’

Despite the current uncertain economic environment precipitated by the surge in COVID-19 cases, wealthy Indians as well as their family offices are seen investing in blue-chip stocks in India and abroad as well in technology start-ups to maximise their returns, according to wealth managers and analysts.

They have mostly moved away from investing in low-yielding fixed instruments such as fixed deposits and bonds, and real estate, even as they invest while putting about 5% of their funds in gold which has emerged as a hedge against rupee depreciation, the analysts said. In addition, there are about 100 top listed companies that are attracting investments from this class, they added said.

“Equities market in India is a great growth engine, and has performed well over a long period of time,” said Atul Singh, founder and CEO, Validus Wealth, a full service Indian private wealth management firm with assets managing AUM close to $600 million for HNIs. He was earlier with Merrill Lynch and Julius Baer.

“There are very few asset classes in the world that have about 15% compounding in-built. The key is being invested in quality, and for a longer term to, attain the returns,” he added.

Mr. Singh said investing in the fixed-income market has become challenging. “Yields have fallen to a level where they are lower than the inflation expectation, giving negative real interest rates. Mutual funds have disappointed in managing the credit risk, and hence are out of favour,” he said.

He added that wealthy Indians are willing to invest in debentures or bonds of companies, where they understand and evaluate the credit risk they take. “In addition to bonds, market-linked debentures have gained popularity as it is a tax-efficient vehicle for taking debt exposure,” he said. These instruments provide about 8% return.

Gold continues to be a popular investment class in India, Mr. Singh said, adding that investors are allocating at least 5% of their investments total assets to gold which is as an insurance hedge and as it continues to protect against rupee depreciation.

He said HNIs were diversifying their portfolios by investing in domestic as well as international markets, too. “Great global franchises offer sustainable compounding opportunities, which gets enhanced by their ability to borrow at near-zero interest rates. Most of the large companies in the U.S. are global businesses, so investing in S&P 500 means accessing global growth. This has proven to a winning formula. S&P 500 has provided better risk-adjusted dollar return than the Sensex, over its life span of 41 years,” he said.

Besides, they are also investing in Indian consumer and technology start-ups that are expected to create significant wealth in the future.

“The average returns on stocks, across market caps, in the past year, have been in the realm of 40% to 50%,” said Tanushree Banerjee, co-head of Research, Equitymaster. “Investors cannot afford to take such high returns for granted. They must have a long-term tenure in mind, so as to fetch returns of 15 to 20% per annum, which are closer to long-term averages.”


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Printable version | Jun 15, 2021 10:16:14 PM | https://www.thehindu.com/business/hnis-invest-in-stocks-stay-off-fixed-income-real-estate/article34552740.ece

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