net worth of india’s ultra hnhs to grow 5 times to 235
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Net worth of India’s ultra HNHs to grow 5 times to ` 235 trillion by 2015-16
T.O.P. India - Decoding the ultra HNI
What sets the ultra HNI as a class apart?What sets the ultra HNI as a class apart?
Value and size of assets
Scale and visibility of spends
Networks of influence
The power they wield
Social visibility and hierarchy
FOREWORD
Ultra high net worth individuals ( HNIs) are the crème de la crème of society, in virtually all respects – be it
in terms of riches, power and status, or even lifestyle. In India, over the past few years, the economic boom has
propelled many already-rich people, and a few other first-time entrepreneurs and technocrats into this
exclusive club, and resulted in a significant burgeoning of the number of ultra HNIs. One barometer of this is
the growing number of Indians who figure in the Forbes Billionaires list that is released every year.
Barring unforeseen circumstances, there is no turning back of the clock on the spectacular India growth story.
As the ultra HNI segment grows, wealth managers will inevitably feel the need for greater knowledge on the
segment, particularly in terms of its behaviour on spending and investments, so that they can provide
suitable, timely advice. So will marketing and strategic managers of companies that specialise in ultra luxury
products and services. Many others will benefit as well.
It is therefore an appropriate time to try and understand the ultra HNIs, in particular their behavioural aspects
when it comes to issues such as spending and investing. This report does just that, revealing new unexpected
trends, debunking some lingering myths and reaffirming some well-known beliefs about the super rich.
Kotak and CRISIL are extremely proud to present this inaugural edition of their report ‘Top of the Pyramid.’ Our
choice of the title is a reflection of who this report is about: the finest of the finest, the best of the best –
The ultra high net worth individual.
Happy reading.
C Jayaram Roopa Kudva
Executive Director Managing Director and CEO
Kotak Mahindra Bank Ltd. CRISIL Ltd.
ultra
About the Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 01
Executive Briefing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 04Key findings of the report
Graphical Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07Visual snapshot of the research findings
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Profiling: The Inheritor, the Self-made and the Professional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151. What sets ultra HNIs apart from other classes of Indian society?2. What are the different routes to earning wealth?3. How can we classify ultra HNIs based on their motivation towards
creating wealth, spending and investing?4. What are their attitudes towards leaving wealth for their family
and contributing to charitable causes?
Spends: Attitudes, Motivation and the Ultra Wealthy Lifestyle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231. What proportion of their income do ultra HNIs spend?2. What products do they prefer to spend on?3. What motivates their spending on luxury brands?
a. Travelb. Luxury watchesc. Jewellery and precious stonesd. Luxury carse. Household electronicsf. Apparel and accessories
Investing: Risk, Return and Wealth Preservation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391. What proportion of their income do ultra HNIs invest?2. What are their investment goals?3. How do attitudes towards risk and return shape their investments?4. What asset classes do they prefer?5. How do they manage investments?
I N S I D E T H E R E P O R T
ABOUT THE REPORT
The phenomenal growth in the number of the super rich has laid the
foundation for an unprecedented expansion of the wealth
management industry in India. Inevitably, it is also driving the entry
and growth of luxury brands that cater exclusively to the tastes of the
ultra high net worth individuals (UHNIs).
For both wealth managers and luxury brand companies, one major
hurdle to their effective functioning and growth is the almost
remarkable dearth of information on the earning, spending and
investing trends of the ultra wealthy.
In this report, the first of what will be an annual edition, we have laid the
broad framework and detailed the methodology to define who an ultra
HNI is. Considering the attention that they have been getting in recent
times, it was also quite tempting to focus on what their numbers are
and who has how much wealth.
Instead, the spotlight in this inaugural year is on behavioural aspects,
such as what drives these individuals, what their priorities or motives
are when it comes to spending or investing, and whether there is any
homogeneity in their actions as a class.
The conclusions are extremely revealing, and a lot of meaningful
insights, some even positively surprising, have emerged from the
analysis. We believe that the takeaways gleaned from this report will be
invaluable for people who manage the wealth of the ultra rich, and will
help niche companies operating in the segment to come up with more
innovative marketing or distribution strategies for their products.
Kotak and CRISIL seized the opportunity to create a report that analyses
and tracks these trends year on year with specific reference to the
Indian market. Kotak is a pioneer and leader in the private banking
space in India. Its Wealth Management team caters to over a quarter of
the 100 most wealthy (as per the Forbes India Rich List - 2011) in India.
CRISIL Research is India’s largest independent research house,
providing comprehensive research coverage to more than 1,200 Indian
and global customers.
This report is based on two main strands of research.
1) A series of interviews were conducted with senior personnel at
major global luxury brands, art gallery owners, product dealers
and industry body representatives.
2) We commissioned a market survey of 150+ ultra HNIs, with
conversations lasting up to one hour. The respondents were
spread across the three major metros, namely Mumbai, Delhi and
Bengaluru, as well as Hyderabad, Ahmedabad, Chennai, Pune, and
Kolkata (referred to as Other cities in this report). A majority of the
respondents (77 per cent) were from the three major metros. The
survey took place between December 2010 and February 2011.
CRISIL Research then undertook an extensive analysis of the results of
the survey, and every conclusion was subject to the same analytical
rigour and review process that is the hallmark of all CRISIL Research
reports.
This report would not have been possible without the co-operation of
all the survey respondents and the interviewees. We thank them for
their invaluable support, the time they put at our disposal, and the
insights they offered.
Completing a successful 25 year run, Kotak is a leading banking and
financial services organisation in India, offering a wide range of
financial services that encompass every sphere of life. From services
like Family Office for ultra HNIs, to Wealth Management for HNIs, to
About Kotak Group
T.O.P. India - Kotak Wealth & CRISIL Research 01|
commercial banking, car finance, stockbroking, asset management, life
insurance, investment banking, the Group caters to the financial needs
of individuals and corporates.
In February 2003, Kotak Mahindra Finance Ltd., the Group's flagship
company, was given the licence to carry on banking business by the
Reserve Bank of India (RBI). This approval created banking history since
Kotak Mahindra Finance Ltd. was the first non-banking finance
company in India to convert itself into a bank as Kotak Mahindra Bank
Ltd.
The Group has a net worth of ̀ 109.63 billion and a distribution network
through branches and franchisees across the country and offices in
New York, California, London, Dubai, Abu Dhabi, Bahrain, Mauritius and
Singapore, servicing close to 8.8 million customer accounts.
The Kotak Group offers the understanding, the experience, the
infrastructure and most importantly the commitment to deliver
pragmatic end-to-end solutions.
Kotak has one of the oldest and most respected Wealth Management
teams in India, providing solutions to high net worth individuals.
Over thirteen years, a wide range of wealth management solutions has
made Kotak Wealth Management the largest player. Our client base
ranges from entrepreneurs to business families to employed
professionals.
On the investment scenario, we believe that no one asset class tends to
perform consistently over a long period of time. Therefore, an HNI
needs to be given access to various asset classes, investment styles,
themes and tenures. Thanks to this focus of the Group, we have built
a formidable suite of products and services straddling this spectrum.
About Kotak Wealth
Our offering is customised, based on the client’s profile and investment
objectives.
The Kotak Wealth umbrella also includes Family Office Services.
Through Family Office Services, we go beyond investments to provide a
host of value-added services such as Estate Planning Services, tax
optimisation, etc.
Kotak Wealth Management was recently awarded the ‘Best Private
Banking Services Overall, Best Family Office Services - India’, in the
Euromoney’s Private Banking Poll - 2011 and ‘Best Private Bank - India’ in
FinanceAsia Country Awards - 2010.
We have maintained our leadership position, thanks to the macro
environment, in-depth understanding of the clients’ requirements and
of the various asset classes. This has resulted in Kotak being in a position
to offer the widest range of solutions for the client.
CRISIL is a global analytical company providing ratings, research, and
risk and policy advisory services.
We are India’s leading ratings agency. We are also the foremost
provider of high-end research to the world’s largest banks and leading
corporations. With sustainable competitive advantage arising from our
strong brand, unmatched credibility, market leadership across
businesses, and large customer base, we deliver analysis, opinions, and
solutions that make markets function better.
Our defining trait is our ability to convert data and information into
expert judgements and forecasts across a wide range of domains, with
deep expertise and complete objectivity.
At the core of our credibility, built up assiduously over the years, are our
About CRISIL Limited
02 T.O.P. India - Kotak Wealth & CRISIL Research|
values: Integrity, Independence, Analytical Rigour, Commitment and
Innovation.
CRISIL’s majority shareholder is Standard and Poor’s (S&P). Standard &
Poor’s, a part of The McGraw-Hill Companies (NYSE:MHP), is the world’s
foremost provider of credit ratings.
We address a rich and globally diversified client base. Within India our
customers range from small enterprises to the largest corporations and
financial institutions; outside India our customers include the world’s
largest banks and leading corporations. We also work with
governments and policymakers in India and other emerging markets in
the infrastructure domain.
We empower our customers, and the markets at large, with
independent analysis, benchmarks and tools. These help lenders and
borrowers, issuers and investors, regulators, and market intermediaries
make better-informed investment and business decisions. Our
offerings allow markets and market participants to become more
transparent and efficient - by mitigating and managing risk, taking
pricing decisions, generating more revenue, reducing time to market
and enhancing returns. By helping shape public policy on
infrastructure in emerging markets, we help catalyse economic growth
and development in these countries.
CRISIL Research is the country’s largest independent and integrated
research house with strong domain expertise on Indian economy,
industries and capital markets. We leverage our unique research
platform and capabilities to deliver superior perspectives and insights
to over 1,200 domestic and global clients, through a range of research
reports, analytical tools, subscription products and customised
solutions.
About CRISIL Research
T.O.P. India - Kotak Wealth & CRISIL Research 03|
Seeds of a luxury revolutionIn slightly under two decades, India has undergone a radical
transformation from being a largely agrarian economy with a modest
growth rate into one of the world’s most dynamic economies. Its GDP
has grown at an average of over 8 per cent per annum over the past
three years and is estimated to have grown by 8.6 per cent in the most
recent fiscal year, making the country the second-fastest-growing
economy in the world, next only to China.
Propelled by this economic boom, there has been an unprecedented
level of wealth creation. Average income levels have risen manifold and
many individuals have suddenly become millionaires. The resultant
quantum increase in money available for spending, and the country’s
increased integration with the global economy have widened the
population’s exposure to major global luxury brands and triggered
a luxury revolution.
Entrepreneurship is clearly the dominant source of domestic wealth,
but fast-growing service industries such as technology and financial
services have also catapulted many hitherto middle-income group
individuals into the ultra high net worth individual (ultra HNI) bracket.
CRISIL Research has defined an ultra high net worth household (ultra
HNH) as one having a minimum average net worth of ` 250 million,
which, as per our proprietary tool ‘IDeA’ (Income and Demographics
Analysis), gets mapped to a minimum income of ̀ 35-40 million.
The total net worth of Indian ultra HNHs is expected to reach ` 235
trillion in 2015-16 from an estimated ̀ 45 trillion in 2010-11.
At present, there are no validated estimates of the number of ultra
HNHs in the country. Kotak Wealth and CRISIL Research estimate that
there are around 62,000 ultra HNHs in India as of 2010-11, with a
minimum net worth of ̀ 250 million. This number represents a meagre
0.03 per cent of the total households in India, but is poised to more than
triple to 219,000 households by 2015-16.
What sets ultra HNIs apart from other classes of individuals in the
country is the sheer value and size of the assets they own. The dramatic
increase in personal wealth has also brought about a change in
attitudes towards spending; public displays of opulence, which would
have been unthinkable a few years ago, are now not uncommon.
Although this is creating exciting new opportunities for wealth
managers and luxury brands, their ability to perform effectively is
being hindered by the absence of adequate information on ultra HNIs,
in terms of their attitudes to investing and spending.
Kotak Wealth and CRISIL Research undertook a survey to gauge various
aspects of ultra HNI behaviour and uncover important trends therein.
We found that today’s ultra HNI is not, in general, a reclusive individual.
On the contrary, he is more likely to be a constant feature on television
channels or on Page 3 of newspapers, and is comfortable in (some
might even say seeks) the limelight.
They are the cream of society, know that they are, and seek to maintain
a lifestyle in keeping with their social standing. Consequently, they are
highly brand conscious, and in some cases, have strong brand loyalties.
In many cases, therefore, price is not the only consideration guiding a
purchase.
In absolute terms, they are very heavy spenders, be it on high quality
homes, food, clothing, or the luxuries of life in entertainment,
education, travel and family vacations. They are also finding new ways
to splurge, such as on buying art and artefacts, yachts, and islands, or
Key trends
EXECUTIVE BRIEFING
04 T.O.P. India - Kotak Wealth & CRISIL Research|
even on underwater weddings, chartering aircraft to go on holidays or
watch sports, entertainment events, and partying.
Contrary to the belief in some quarters that they are highly
individualistic, our survey revealed strong family bonds and
dependence, when it comes to decision-making on spending or
investments.
The spending on, and choice of big ticket items such as holiday
packages, luxury watches, diamonds and jewellery, household
electronics (which include premium mobiles and high-end cameras),
and home décor is carried out in consultation with the family. The
family plays an important role in, for instance, identifying a holiday
location, or choosing a home theatre brand. Appeal and price are,
therefore, important considerations in planned purchases.
It is only on items such as apparel, accessories, or liquor that an ultra
HNI’s personal predilections and impulses come into play. Impulse
purchases are usually done at the airport (duty-free shops) or while
travelling, and purchases are made largely on how eye-catching the
product is, in addition to the brand, the newness of the product and
exclusivity. The need for the product is not a factor in impulse
purchases; but having cash in hand is.
Likewise, while making investments, ultra HNIs take advice from family,
close friends, trusted advisors and professionals such as chartered
accountants and lawyers. Legacy for the spouse and children, social
security and regular income are important factors that guide their
investments. Possibly because of this, they are willing to take far lesser
risk on their investments compared with what they are willing to take
in their business.
Most ultra HNIs are distinguished individuals in social networks of
power and influence. Their long-standing network of elite contacts
gives them differentiated access to business opportunities, and they
try to put it to good use to further expand their wealth.
Interestingly, today’s ultra HNIs would typically include business
people who own enterprises with a turnover of ` 750 million or above,
corporate executives, established professionals, politicians, traders,
builders and agricultural landowners, unlike before Independence
when they were more likely to be the upper classes or the nobility.
Based on the results of the survey, Kotak Wealth and CRISIL Research
have classified India’s ultra HNIs into three groups:
• Inheritors
• Self-made
• Professionals
Inheritors are born with a silver spoon, and have inherited high net
worth; Self-made are first generation entrepreneurs whose success in
business turned them wealthy; and Professionals are qualified, highly
skilled professionals who gained wealth because the companies that
employed them grew big.
The wealth dynamics and behavioural traits of each of these groups
are unique, and wealth managers and luxury brands will face diverse
challenges in their dealings with them.
Most people agree that barring unforeseen circumstances, the long-
term India growth story is intact. As noted earlier, this will result in a
significant increase in the number of ultra HNIs in the country.
For wealth managers and luxury brands, this will mean an appreciable
increase in their addressable market. This will necessitate not only an
increase in the type and nature of products that they offer to this
segment, but also greater awareness about behavioural trends with
regards to spending and investment by ultra HNIs. This will allow
wealth managers and luxury brands to evolve more innovative
Conclusion
T.O.P. India - Kotak Wealth & CRISIL Research 05|
marketing strategies and target their products in better, more effective
ways.
It is also evident that the segment of high net worth individuals will
spawn the next wave of ultra HNIs. Wealth managers and luxury brands
who are able to engage this segment productively and establish
profitable (in every sense of the term) long-term relationships will find
that they will have a first mover advantage when these people
transition from being high net worth individuals into ultra HNIs.
This will entail development of a greater range of products,
consistently high standards of quality of service and, critically, the
right pricing. Here, to avoid familiar pitfalls, some of the new luxury
entrants would do well to analyse the experience of multinational
companies in India.
Some of the multinational companies that forayed into India have
become successful because they jettisoned pre-conceived notions and
strategies that worked elsewhere and adopted techniques that took
into account the local ethos, culture, and tastes to build lasting brand
loyalties.
Kotak Wealth and CRISIL Research believe that this report will be a
useful tool in the hands of both wealth managers and luxury brands. It
will help them to engage more effectively and productively with their
ultra HNI clients while making investment decisions and may also
enable them to gain invaluable insights that will help them increase
their business.
06 T.O.P. India - Kotak Wealth & CRISIL Research|
Overview
* Forbes India Rich List - 2011Source: T.O.P. India - Kotak Wealth & CRISIL Research
2011
11,090
55Indians
=billion
1996
billion3 = 212
Indians
2004
billionIndians8 = 1,157
Net worth ( ` billion )
From 3 to 55: The rising number of Indian billionaires in the Forbes rich list
India now has a record number of 55 billionaires*. The country is next only to the United States and China in the number of billionaires.
GRAPHICAL SUMMARY
If we consider a household with a minimum net worth of ` 250 million, there are around 62,000 ultra HNHs in India as of 2010-11.
Source: T.O.P. India - Kotak Wealth & CRISIL Research
2010 -11 E62,000
2015 -16 P219,000
219,000 by 2015-16ultra wealthy households in India
E: Estimated P: Projected
T.O.P. India - Kotak Wealth & CRISIL Research 07|
Net worth ofUHNHs
2010-11 E
` 45 trillion ` 235 trillion
2015-16 P
Net worth of India’s ultra wealthy households to increase by more than 5 times over the next 5 yearsThe total net worth of Indian ultra HNHs, is expected to reach ` 235 trillion in 2015-16 from an estimated ` 45 trillion in 2010-11.
Source: T.O.P. India - Kotak Wealth & CRISIL Research
E: Estimated P: UHNH: Ultra high net worth household
Projected
08 T.O.P. India - Kotak Wealth & CRISIL Research|
Spending patterns
Home decor / Crystals
Jewellery / Precious stones
Household electronics
Luxury watchesExclusive
holiday packs
82%
17%1%
57%
37%6%
56%
43%1%
54%
44%2%
41%
58%
38%
59%3%
Vintage spirits / Liquor
Apparel / Accessories
Luxury writing instruments Art / Artefacts
67%
28%5%
42%
58%
39%
61%1%
BothPlanned Impulse
Source: T.O.P. India - Kotak Wealth & CRISIL Research
Big-ticket spends are planned in advance, often with family involvementIn most purchases, such as holiday packages, luxury watches, jewellery, household electronics, and home décor, the family plays a paramount role, considering the huge spends involved.
Note: The data values have been indexed to Exclusive holiday packs.Source: T.O.P. India - Kotak Wealth & CRISIL Research
Ultra HNIs prefer to spend more on products meant for the familyA significant portion of overall expenditure goes into customised holiday packages, luxury watches, jewellery, and household electronics.
Luxury writing
instruments56
Home decor /Crystals
57
Jewellery /Precious stones
90
Apparel /Accessories
73
Householdelectronics
90
Exclusive holiday packs
100
Luxury watches
98
Art /Artefacts
36
Vintage spirits
52
T.O.P. India - Kotak Wealth & CRISIL Research 09|
19.3%
20%
6.3%
3.9%
22.4%
28.4%
19.7%
Investment for growing personal wealth
Savings
Expenses
Investment in primary business
Charity / Philanthropy
Others
Source: T.O.P. India - Kotak Wealth & CRISIL Research
Ultra HNIs invest one-fifth of their income for growing their wealthBut they put a greater proportion back into their business to fuel the engine of wealth creation. This stems from a desire for a sense of control. Most ultra HNIs would rather invest in their own business rather than in instruments where they have no control.
Ultra HNI's investing strategy has been simple so far...
Source: T.O.P. India - Kotak Wealth & CRISIL Research
37.2% 20.4% 9.3%33.1%
Equity Debt Alternate assetsReal estate
Investment
...but their investments in more complex assets are poised to rise
Alternate assets
Source: T.O.P. India - Kotak Wealth & CRISIL Research
9.3% 11.2%
20.4% 18.2%Debt
Equity 33.1% 30.1%
9.5%
20.8%
31.6%
38.1% 37.2% 40.5%Real estate
2009-10 E 2010-11 E 2011-12 P
E: Estimated P: Projected
10 T.O.P. India - Kotak Wealth & CRISIL Research|
INTRODUCTION
The Land of Maharajas is hardly a stranger to opulence and luxury.
Before Independence, some of India’s rulers and landed gentry were
among the richest in the world. If the Nizam of Hyderabad was a legend,
who can forget his family of prime ministers, the Salar Jung family. Their
family property was so vast that a museum, named after the household,
houses the biggest one-man collection of antiques in the world, that of
the last prime minister.
But post-Independence, such opulence had become anathema and
consumerism was a dirty word in the Indian lexicon. So, what caused
this turnaround and what is driving this luxury renaissance in the
country?
The answers to these questions are not difficult to find. The collapse of
the Soviet Union in the late Eighties ended the Cold War and coincided
with a global revolution in information technology, a segment that the
Indian corporate sector embraced and gained a leadership role in.
Simultaneously, successive Indian governments unleashed a series of
economic reforms that freed the economy, promoted entrepreneurship,
and encouraged capital and wealth creation. As the country’s GDP
growth zoomed towards the high single digit mark, growth was
unleashed in the ITeS (information technology enabled services)
sectors, capital markets opened up, average income levels rose
multifold and many suddenly found themselves to be millionaires –
first rupee millionaires and then dollar millionaires. Suddenly, there
were riches everywhere and money in the pockets waiting to be spent,
even as the country’s increased integration with the global economy
widened the population’s exposure to major global luxury brands.
It was, and continues to be, a situation tailor-made for the luxury
revolution.
So, for instance, a Mumbai-based builder is offering exclusive homes,
in the nation’s financial capital, each with a private swimming pool and
whose interior will feature some of the world’s leading luxury brands
such as Bulthaup, Antonio Lupi, Dornbracht, Gessi, and Villeroy and
Boch.
* Forbes India Rich List - 2011Source: T.O.P. India - Kotak Wealth & CRISIL Research
2011
11,090
55Indians
=billion
1996
billion3 = 212
Indians
2004
billionIndians8 = 1,157
Net worth ( ` billion )
From 3 to 55: The rising number of Indian billionaires in the Forbes rich list
T.O.P. India - Kotak Wealth & CRISIL Research 11|
The apartments are being offered at a whopping base price of nearly
$1.5 million, and the really top-end ones are expected to go at 10 times
that. That price is comparable to the really high-end homes in exotic
locations in Manhattan, Beverly Hills and Florida.
Today, an Indian holds the distinction of owning what is believed to
be the world’s most expensive residence – the Antilla in Mumbai, which
took seven years to build, is bigger than the Palace of Versailles in
France.
It is a sign of the times that hardly a day goes by without the
announcement of the entry of a global super luxury brand into India. If
yesterday it was the Bugatti Veyron, today it is the Koenigsegg Agera
and the Maserati. Exotic cars such as the Veyron and the Agera cost in
excess of ` 120 million each. Contrast that with 25 years ago, when it
needed a Ravi Shastri and his heroics in the World Championship of
Cricket in Australia to make known the Audi in India.
According to some projections, by 2050, an average Indian’s standard
of living would be what it is in Spain today. More importantly, the
country would be possibly home to the largest number of billionaires in
the world, with the possible exception of China.
India now has a record number of 55 billionaires, according to the
Forbes India Rich List – 2011. The country is next only to the United
States and China in the number of billionaires. The combined wealth
of India's 55 richest is $246.5 billion, much higher than last year's total
of $222.1 billion. It is also more than the combined GDPs of Pakistan
and Sri Lanka.
A few years ago, such public displays of opulence would have been
unthinkable. But attitudes are changing and that trend is unlikely to
reverse, because, barring any unforeseen circumstances, there is near-
consensus globally that the India growth story will endure in the long
run.
All this does, therefore, beg the question: who are these ultra high net
worth individuals (ultra HNIs)? And what drives their spending and
investment behaviour? Are there any lessons therein, for luxury brands,
wealth managers and others?
Wealth is often measured in terms of assets and money. But defining
wealth solely on the basis of assets would be arbitrary. Wealth today is
also about attitudes and lifestyle. It is, thus, also important to factor in
the variations in standards of living around the world, as they serve as
indicators to define the luxury and privilege that a household’s wealth
can purchase. Relative perceptions of wealth also differ according to
the geographical locations, because economic factors, cost of living
and concentration of wealth differ from city to city. Even within a city,
these differences can be substantial.
Consequently, Kotak Wealth and CRISIL Research believe that
international yardsticks to define a high net worth individual are not
suitable in the Indian context. For instance, inheritance is not a primary
wealth forming segment in India, unlike in Europe that has been rich for
over 25-30 decades. Also, India has always had plenty of enormously
wealthy people such as landlords, royalty, rich farmers and traders, who
do not discuss their assets with financial institutions. This is because of
deep-rooted cultural moorings of keeping money matters strictly
private. India’s wealth dynamics are unique and need to be explored
appropriately.
Defining ultra high net worth households
Keeping this context in mind, and for the purpose of this report, CRISIL
Research has defined an ultra high net worth household (ultra HNH) as
one having a minimum average net worth of ` 250 million (as of 2010-
11) accumulated over the past 10 years, which as per our proprietary
tool ‘IDeA (Income and Demographics Analysis) gets mapped to a
minimum income of ̀ 35 to 40 million.
’
12 T.O.P. India - Kotak Wealth & CRISIL Research|
The total number of households which lie above this minimum average
net worth of ` 250 million form a meagre 0.03 per cent of the total
households in India as of 2010-11. Households above this threshold
net worth would provide a sizable addressable market for luxury
brands and services in other cities as well, in addition to Mumbai and
Delhi, which makes it easy to gauge city-wise patterns of attitudes and
behaviour for these households. For these reasons, Kotak Wealth and
CRISIL Research have used ` 250 million as the base net worth for
defining an ultra HNH.
Size of ultra HNHs in IndiaIn less than two decades, India has been transformed from a slow-
growing agrarian country into one of the world’s most dynamic
economies. The country’s GDP has grown at an average of more than
8 per cent annually over the past 3 years and is estimated to have grown
by 8.6 per cent in the most recent fiscal year, making India the second-
fastest-growing major economy in the world. This economic boom has
led to an unprecedented level of wealth creation.
Net worth ofUHNHs
2010-11 E
` 45 trillion ` 235 trillion
2015-16 P
Net worth of India’s ultra wealthy households to increase by more than 5 times over the next 5 years
Source: T.O.P. India - Kotak Wealth & CRISIL Research
E: Estimated P: UHNH: Ultra high net worth household
Projected
T.O.P. India - Kotak Wealth & CRISIL Research 13|
The total net worth of Indian ultra HNHs is expected to reach ` 235
trillion in 2015-16 from an estimated ̀ 45 trillion in 2010-11.
If we consider a household with a minimum net worth of ̀ 250 million,
there are around 62,000 ultra HNHs in India as of 2010-11, estimates
Kotak Wealth and CRISIL Research. Although this number represents
a meagre 0.03 per cent of the total households in India, it is poised to
more than triple to 219,000 households by 2015-16.
If we consider a household with a minimum net worth of ` 250 million, there are around 62,000 ultra HNHs in India as of 2010-11.
Source: T.O.P. India - Kotak Wealth & CRISIL Research
2010 -11 E62,000
2015 -16 P219,000
219,000 by 2015-16ultra wealthy households in India
E: Estimated P: Projected
14 T.O.P. India - Kotak Wealth & CRISIL Research|
It is raining billionaires in India, never mind the fact that a major chunk
of the country's huge population still grapples with poverty. And these
billionaires come from diverse backgrounds.
Consider, for instance, a well-known industrialist, and a Forbes
billionaire. In 2010, Forbes estimated his net worth at US$1.0 billion,
making him one of India’s Top 50 richest persons. A farmer's son, he got
his first break in his uncle's construction business in Hyderabad. The
first project that he handled was to build a dam. He then started his own
construction venture. Subsequently, however, he left India to set up a
factory to manufacture laminated particle boards in the US. He
returned to India in 1992, attracted by opportunities to help build
India's infrastructure. He quickly moved into the power industry,
building India's first power plant in the private sector. He made news in
2006 by winning the bid to modernise the Mumbai airport, a project
headed by his son. He also has interests in hotels in partnership with a
leading luxury hotel chain in India.
Obviously, what sets ultra HNIs apart from other classes of individuals in
the country is the sheer value and size of the assets they own. After all, it
is not every day that one goes and buys an island to fulfill a whim,
maybe, but there are a few Indian ultra HNIs who have done precisely
that.
The era of socialism has ended, at least as far as public displays of wealth
are concerned.
In absolute terms, ultra HNIs are also very heavy spenders, be it on high
quality homes, food, clothing, and the luxuries of life in entertainment,
education, travel and family vacations.
Today’s ultra HNI is not, in general, a reclusive individual.
On the contrary, he is more likely to be a constant feature on television
channels or on Page 3 of newspapers, and is comfortable in (some
might even say seeks) the limelight.
Wealth is power is no empty adage. Most ultra HNIs are distinguished
individuals in social networks of power and influence. Their long-
standing network of elite contacts gives them differentiated access to
business opportunities.
Today’s ultra HNIs would typically include businesspeople who
own enterprises with a turnover of ` 750 million or above, corporate
executives, established professionals, politicians, traders, builders,
and agricultural landowners. In that sense, evidently, wealth is a
great leveller.
With such a variegated mix of people, it is interesting to delve into how
they behave as a class, if at all they do. Or, are there innate differences
that are triggered or governed by more latent aspects of behaviour?
Kotak Wealth and CRISIL Research ventured to study precisely that.
We concluded that ultra HNIs fall into two broad categories:
• Old money: This is essentially inherited money and comprises
people who have inherited wealth or businesses.
• New money: This includes the newly rich who come from all walks
of life and those who have made money through mega salaries,
bonuses and stock options, and those who have started their
businesses on their own and made their fortunes.
One interesting aspect of this class today is heterogeneity; they come
from all social backgrounds, unlike before Independence when they
were more likely to be the upper classes or the nobility.
Entrepreneurship is clearly the dominant source of wealth in India,
but fast-growing service industries such as technology and financial
services too have catapulted many hitherto middle-income group
individuals into the ultra HNI bracket.
PROFILING
16 T.O.P. India - Kotak Wealth & CRISIL Research|
Based on the results of the survey, Kotak Wealth and CRISIL Research
have classified ultra HNIs into three groups:
•
• Self-made
• Professionals
Inheritors are born with a silver spoon, and have inherited high net
worth; Self-made are first generation entrepreneurs whose success in
business turned them wealthy; and Professionals are qualified, highly
skilled professionals who gained wealth because the companies that
employed them grew big. The wealth dynamics of each of these groups
are unique.
If the way in which they made their money is interesting, even more
noteworthy is the finding that these three types of ultra HNIs differ
markedly in their patterns of spending and investment. To understand
these three ultra HNI profiles better and deeper, we have examined
them in terms of several factors.
1) Sources of wealth
Along with the traditionally wealthy business class who have
generated significant wealth from an inheritance, a new breed of ultra
HNIs, who have earned their money through their job (in thriving
sectors such as telecom, IT / ITeS and financial services) or through
ownership of business, has emerged.
2) Motives for wealth creation
‘Spend on the present and save for the future’ are clearly the motives for
wealth creation for most ultra HNIs. For many, financial security in
retirement is paramount, followed by a better personal lifestyle, while
for some others, the financial security of children and family is a priority,
apart from philanthropy.
Inheritors
3) Spending patterns
The expense structure or spending pattern of ultra HNIs is determined
by factors such as the prevalent lifestyle and standard of living in a
particular city, in addition to individual and familial preferences of ultra
HNIs in terms of products and brands.
4) Investing patterns
Compared with the risks they are willing to take while acquiring wealth,
ultra HNIs are typically conservative with the level of risk when it comes
to their investments in stocks and shares, bonds, property,
commodities such as gold, and in alternate assets, such as antiques
and art. Increasingly, however, as they gain greater knowledge,
understanding and confidence about alternate asset classes, many
ultra HNIs are investing in vehicles that are generally considered to be
at the riskier end of the financial spectrum, such as hedge funds, private
equity, structured products and derivatives.
5) Attitude to ‘giving’
There are a multitude of reasons why today’s ultra HNIs give to charities.
For one, today’s ultra HNI is more socially aware and feels a sense of
responsibility to give back to society. Another factor is that today’s ultra
HNIs feel that they can make an impact on some of the global causes by
giving to charities.
6) Perpetuation of wealth
The passing on of wealth from one generation to the other is a common
human trait; some are more privileged to get substantial inheritances.
Although average wealth has gone up and entrepreneurship has
grown, financial legacy for dependents still remains an important
motivating factor for ultra HNIs.
T.O.P. India - Kotak Wealth & CRISIL Research 17|
EntrepreneurshipInheritance;entrepreneurship
Self-recognition
Value
OrganisedInformal
The ProfessionalThe Self-madeThe Inheritor
Empowerment; rarely gives time
Compassion; gives money, less time
Wealth is unconditionally for immediate family
Wealth is for family, but they must strive to merit wealth
Attainingluxurious living
Wealth preservation
Self-actualisation
Maintainingluxurious living
Responsibie and conscious; gives money and time
Wealth needs to remain within the extended family
Professional
Sources of wealth
Motives for wealth creation
Drivers of spending
Approach to investing
Attitude to charity
Attitude to perpetuation of wealth
Decoding the DNA of the ultra HNI
The Inheritors
Being born into an ultra wealthy family gives them an enhanced
standard of living and access to a distinct set of privileges such as
education in prestigious institutions, financial capital to start their own
business, and access to influential social networks.
The original connoisseurs, this group comprises of people who have
inherited wealth or businesses from their forefathers.
And, not to mention, unique, rather expensive tastes. “I travel to London
to watch opera twice a year,” one of our respondents said, matter-of-
factly.
There is a flip side to this, though. Untold inherited riches can bring
along with it incalculable pressure – the pressure of preserving, if not
multiplying, inherited wealth; the pressure of making a mark in life and
proving themselves worthy of the inheritance, and ensuring that the
next generation sustains the family’s hard-earned wealth.
“I don’t know how capable or interested my kids would be taking over
the business,” one of them wondered aloud. “Having built so much, I
want to pass it on into capable hands.”
Inheritors relish challenges, tend to remain actively involved in their
business and believe that they need to keep working hard to grow their
wealth, a trait they share with the Self-made.
Apart from inheritance, the Inheritors surveyed for this study cited
success in their primary business and economic investments – notably
in real estate and equity markets – as the main contributors to their
wealth.
They are the cognoscenti, used as they are to luxury and luxury brands.
Interestingly, many of them prefer to purchase their favourite
international brands from abroad even if they are available in India. This
appears to be either for nostalgic reasons or because of the mental
comfort associated with similar purchases abroad in the past, or in
some cases because their longer period of association with luxury
brand marketers gives them access to privileged or customised
services. And they are likely to combine shopping abroad with holidays
overseas with family.
Because they are so wealthy and successful, and recognised in their
social niche, they do not feel the need to make any style statements,
even though they tend to identify themselves very closely with a brand,
and view it as a means to reflect their social standing.
So, for every one of them who dangles a Patek Philippe or a Breguet
watch, or maybe even a Franck Muller or an Audemars, there will also be
a “I proudly wear the watch which my 11 year old daughter presented
(purchased for ̀ 690) with her pocket money” type.
Because of their strong brand affinity, price is not really a criterion for
Inheritors for owning a brand, again a trait that they share with the Self-
made.
Our survey indicated that, for the Inheritors, the top spends on self are
luxury watches, designer clothing, personal accessories, and luxury
writing instruments. But the big-ticket spending is reserved for the
family; the major spends are on exclusive holiday packages, jewellery
products and household electronics.
Inheritors are generally impulsive when it comes to spending on
themselves, with exclusivity and brand popularity primarily guiding
In general though, Inheritors are highly evolved brand users;
consequently, they have higher propensity to experiment with brands
or be among the earliest in their circle to adopt a new brand. Therefore,
they remain clued on to the latest trends in styles and brands in their
social circles.
T.O.P. India - Kotak Wealth & CRISIL Research 19|
their impulse buying. They plan their spending on family in advance.
Although family members are equal participants in planned spending,
Inheritors keep an eye on exclusivity. Our survey indicates that they are
also great followers and collectors of art, and not purely for investment
purposes.
They distribute their investments across asset classes, with a greater
emphasis on real estate – about 40 per cent – and equity – about 30 per
cent. Their real estate investments are diverse – villas, apartments,
resorts and holiday homes, commercial buildings (which could be for
their own use), agricultural land and plantations, and vacant land.
Just as they utilise the services of professionals to run their businesses,
the Inheritors also take the services of professionals such as wealth
managers, chartered accountants, financial planners, and lawyers to
manage their investment portfolio.
The traditionally wealthy tend to have established systems for
succession of wealth, and mechanisms for passing wealth from one
generation to another. These systems, however, seem to be
progressing with the times. Inheritors are still most likely to transfer the
family estate to an heir. While they would retain business ownership
within the family, they could leave the onus of running the business to
professionals, a relatively newer practice.
This group comprises ultra HNIs who started on their own and have
worked diligently to make a name in their business circles.
A standout feature that was revealed in the survey was that although
they take risks to acquire wealth, Inheritors are far more risk-averse
when it comes to investment.
The Self-made
They are
constantly in search of avenues to increase their wealth and have an
inherent desire to be recognised as rich.
They strongly believe that possessions are a hallmark of those who
have succeeded and those who haven’t.
Responding to our survey, a majority of the self-made entrepreneurs
listed success in their primary business, investment in real estate and
diversification of their business as the top three contributors to their
wealth. They actively engage in running their day-to-day business and
intensely involve themselves in their spending and investing decisions.
The Self-made are calculated risk-takers, highly driven individuals and
are constantly on the lookout for new ways to grow their wealth.
Having made their wealth through success in their primary business,
the Self-made believe that entrepreneurship is the road to sustaining
their wealth. So they tend to own multiple businesses.
“You will never see me as a retired person; we have already earned
enough to maintain our status and now work gives us pleasure,” one of
them, who qualifies to be in this group, said.
The Self-made attribute their success in business to hard work and
effective networking. They divide their time between running their
business and networking with their business contacts. They always
tend to look for occasions for networking and making new business
contacts.
For the Self-made, life revolves around their work, and they have very
little time for anything else. According to our survey, the Self-made
tend to have a latent desire to enjoy life to the fullest. However, their
challenging work schedule is sometimes a hindrance in the way of their
fulfilling that desire, as also their other goal of making time for family.
To renew their popularity in business and social circles, they are most
likely to try new themes or unique venues for entertaining their friends
and business associates. They value personal contacts and people
more than they value organisations.
20 T.O.P. India - Kotak Wealth & CRISIL Research|
The Self-made are highly receptive to product innovation and are,
hence, a delight for marketers of luxury products and services.
“I change mobiles every six months. I like to upgrade them always,” one
of the respondents said.
The Self-made typically tend to use brands as a means to fulfill their
aspirations, and show the strongest propensity for owning customised
products. They are, therefore, plum targets for products based on
cutting-edge technology or products tailored to their needs.
Being active networkers, and inquisitive by nature, the Self-made gain
access to information on the latest brands, styles and trends in the elite
parties they attend. With a number of major luxury brands making their
entry in the Indian market, the Self-made do most of their shopping
from luxury retail stores within the country as their tight schedule of
business engagements does not always give them the time to shop
abroad. They are likely to be the biggest spenders on designer clothing,
personal accessories like handbags, wallets and leather products, and
designer mobile phones. They are also amongst the biggest spenders
on luxury watches. Spending on family is confined to holidays abroad,
jewellery products and household electronic products. Frequency of
travel abroad is relatively much lesser than the other categories of the
ultra HNIs, probably because they spend more time on business.
The survey finds that the Self-made are more comfortable with people
than with organisations. This is perhaps why many of them believe in
They are
typically the earliest adopters of new devices or gadgets in their circle,
which sets them apart as trendsetters in their social circles.
Compared to the other categories of ultra HNIs, the Self-made deploy
the lowest proportion of their income on investments for growing their
wealth. They are also likely to be the most involved, among the ultra
rich, in planning their investments.
developing personal equations with specific chartered accountants,
wealth managers, private financial advisors, friends and family and
seek their advice on critical matters.
They also tend to take calculated risks with their investments. For
instance, they are likely to have the highest proportion of investments,
among the ultra wealthy, on alternate assets such as private equity
stake in businesses. They balance such investments with relatively less
risky instruments such as fixed deposits and insurance policies. As a
rule, they invest only in instruments that they best understand. Their
tendency to take measured risks is also apparent in their choice of real
estate assets – they are more likely to own a mix of real estate assets
such as holiday homes, commercial buildings and agricultural land and
plantations, apart from apartments and villas.
These are people who happened to be in the right industry at the right
time. Their numbers have grown significantly in the last couple of
decades, having worked their way to wealth, in service industries such
as information technology and financial services, benefitting from
handsome salaries, hefty bonuses, end-term benefits and stock
options. Others are self-employed. Doctors, lawyers and accountants
are the other kinds of professionals for whom expertise
is their originator of wealth.
Compared with the other two types,
They
are more likely to view hard work as a means to extend their capabilities
further, and view wealth as an outcome of those enhanced capabilities.
It is this focus on growing their expertise that allows them to choose
between working, consulting, advising or mentoring. Professionals are,
therefore, able to diversify the routes to creating and maintaining
wealth.
The Professionals
Professionals are less possessed by
the idea of continuing to work hard to grow their wealth over time.
T.O.P. India - Kotak Wealth & CRISIL Research 21|
Professionals have a greater proportion of their total income available
for spending and investing than other ultra HNIs. As most of them do
not run a business, a relatively lesser portion of their total income is
marked for business investments. Professionals, therefore, spend and
invest a greater proportion of their income than other ultra HNIs.
Spend they do, but wisely. “To me, in any purchase, usability is of utmost
importance. If I want to splurge on a beamer (BMW luxury car), I will ask
myself do you really need one. If I am convinced then I will buy,” a
Professional stated.
For them, their preferred brand has to be unique and has to have its
own USP (unique selling proposition). For instance, when questioned
on the kind of cars they aspire for, most Professionals interviewed for
the survey confessed a weakness for sports utility vehicles (SUVs),
crossover SUVs, ultra luxury cars, and sports cars, convertibles,
roadsters – all of which are big-ticket vehicles.
They invest primarily for growing rather than protecting their wealth.
As their absolute income level and also income as a proportion of net
worth is far lesser in comparison to the other ultra HNI categories, they
have a greater need to grow wealth. In their investing, Professionals
are concerned about social security and regular income, according
to our survey. “Once you are 50, all your money should be easy to
(be made) liquid,” one of them quipped.
The Professionals, as our survey indicates, spend time on self-
enrichment by pursuing their hobbies and following their passions
closely, like travelling. Professionals tend to travel extensively to pursue
personal interests. Befitting this passion, high-end cameras find a
unique position in Professionals’ spending preferences.
“I love wild life photography and invest in upgrading the lenses, I spend
quite a bit of money on this. I choose my travel accordingly,” one
respondent said.
Professionals route three-fourths of their investments into financial
assets, primarily equity and debt.
Although Professionals may not have as much organised scale to
manage investments as the traditionally wealthy Inheritors, they are
the most inclined to pay for investment advice compared with other
ultra HNIs.
“Investing is a passion for me , it is fun to get information from different
wealth managers,” a Professional disclosed.
In view of their background,
“It is a way of life for me,” one of them said. “It (charity) should go
hand in hand with life,” opined another. They prefer to channel their
giving through charitable institutions rather than contribute at an
individual level.
Most Professionals believe that a solid foundation of values, education
and effort will stand their children in better stead than exposing them
to the luxuries of life. The same logic applies to leaving behind a legacy
for children. Professionals would rather have their children make their
mark in life through merit.
“Most of my wealth I want to give to charity. I want my son to create
wealth the way I have,” one of the Professionals concluded.
Our survey reveals that they clearly
try to inject more safety in their investments and diversify risk by
investing across a variety of asset classes.
Our survey found Professionals to be the biggest users of professional
help, consulting wealth managers and financial planners for their
investing decisions.
Professionals are most concerned about
social inequality than other ultra HNIs, and take time to give back to
society.
22 T.O.P. India - Kotak Wealth & CRISIL Research|
In February 1992, while presenting his second budget as finance
minister, Dr. Manmohan Singh had said, “To realise our development
potential, we have to unshackle the human spirit of creativity, idealism,
adventure and enterprise that our people possess in abundant
measure.”
Critically, what has changed radically due to this accumulation of
wealth by more and more Indians has been their attitude towards
spending. Until the 1990s, leaving aside some regional cultural
differences, the average Indian was far more circumspect in spending,
particularly on items or services that are generally perceived to be
crassly consumerist.
That is no longer the case. The average individual is today bombarded
through all forms of media by focused sellers intent on peddling a
variety of goods. Moreover, due to the explosion of information fuelled
by the Internet, and increased global travel, there is greater awareness
of global brands. And there is willingness to spend because things are
within reach and the pockets are loaded.
Anecdotal or apocryphal, there is this story about America’s first
billionaire John D Rockefeller. One day, Rockefeller made a call from a
pay phone – and lost his quarter. When the machine did not refund the
money, he called the operator who expressed regret over the incident
and asked for his name and address so that the amount could be
returned to him. "My name is John D...," Rockefeller began. "Oh, forget it.
You wouldn't believe me anyway!"
Today, nearly two decades later, it would be fair to say that the
economic reforms of the early 1990s did indeed unleash a wave of
industrialisation and growth. This fuelled increased levels of income
and wealth among many sections of Indian society.
Ultra HNIs and spending
SPENDS
So, is it that the ultra HNIs, despite their millions and billions, are
burdened with the same worries and concerns that trouble most
ordinary folk? Or is Rockefeller just an exception to the breed? Our
survey on spending threw up a few surprises to this, and other
questions related to the spending behaviour of the wealthy.
First, as a proportion of total income, it is the Professional – and not,
as popular wisdom would suggest, the Inheritor or the Self-made –
who, well, splurges the most, if one can call it that. This can probably
be explained by the fact that Professionals derive their income
predominantly from a job, unlike the Inheritors and the Self-made,
both of who generate their income principally from their businesses.
Not surprisingly, the latter two plough back nearly a third of their
income into their primary businesses. All the three – the Inheritors, the
Self-made, and the Professionals – save (cash savings) nearly a fifth
of their total income, and invest another one-fifth to multiply their
personal wealth.
In a pattern that can be explained on the basis of widely acknowledged
regional cultural traits, ultra HNIs in the North tend to be a bit more
expansive with their money compared with their counterparts from
the South.
The comparison across age groups coughed up what, at first glance,
appeared to be a bizarre statistic:
But it is not so remarkable if one considers that most of the younger lot
are passionate about their businesses, and are highly motivated by the
desire to grow their businesses aggressively, enhance their wealth and
gain recognition. Consequently, a greater percentage of both their
income and time is invested in their businesses.
The relatively younger ones appear
to be far more conservative in their expenses. This is antithetical to the
perception that the old are generally thrifty compared with the young.
24 T.O.P. India - Kotak Wealth & CRISIL Research|
Source: T.O.P. India - Kotak Wealth & CRISIL Research
The Professional – not the Inheritor or the Self-made – spends the most, as a proportion of total income
Expenses
Investment inprimary business
Savings
Investment for growing personal wealth
Charity / Philanthropy
Others
30.2%
21.5%
19.0%
18.9%
6.2%
32.6%
20.0%
20.1%
21.6%
10.4%
2.5%
28.8%
15.9%
20.8%
Self-made ProfessionalsInheritors
18.6%
4.2%
4.3%
4.4%
T.O.P. India - Kotak Wealth & CRISIL Research 25|
Not so the older generation of ultra HNIs. Their passion for
reinvestment into their businesses wanes as they grow older. This,
perhaps, is because after they become well-known and their
businesses become established, and are increasingly turned over to
professionals or the next generation of family, they are left with both
time and money to indulge themselves on cravings they probably
sacrificed in their younger days.
Our survey numbers bear this out.
By contrast, the semi-retired ultra HNI is far more laidback: he reinvests
only 18 per cent of his income in his primary businesses, and spends
nearly 28 per cent of his income on vagaries such as luxury travel
packages, a luxury watch, or even high tech gadgetry.
It would be inappropriate to conclude from all this that the Professional
is a squanderer. According to the results of our attitudes survey, unlike
the Inheritors and the Self-made, Professionals are not as
overwhelmingly consumed by the desire to build up wealth that their
children can inherit; based on their own experiences, they place far
greater premium on success through good education and hard work,
and are quite willing to let their progeny come good on their own.
Equally, we found, the Professionals are acutely conscious of the
environment they come from and are far more inclined towards charity
than the others. Quite distinct from their regular or occasional spend,
the Professionals bequeath nearly 10 per cent of their income towards
noble causes, markedly higher than 6 per cent for Inheritors and
around 4 per cent for the Self-made.
On the flip side, as noted earlier, while putting away a reasonable
percentage of his income as savings, Professionals also show greater
Ultra HNIs who are active or very
active in their businesses spend nearly a fifth of their income on regular
or occasional expenses, and reinvest nearly 30 per cent of their
earnings in their primary business.
propensity to spend on luxurious items. But even here, caution rules:
the motto is “value for money”.
By contrast, for Inheritors, luxury has always been a way of life, and
brand is often associated with societal status, and hierarchy and even
familiarity – as one of them said, “I plan purchase of only high-value
(read brand) items. It should reflect my status” – and price quite often
plays secondary fiddle in their purchase decisions.
Overall, the survey revealed,
Following closely are items such as domestic
and international branded wear, high-end cameras, and luxury leather
products.
ultra HNIs as a class spend a significant
portion of their overall expenditure on customised holiday packages,
luxury watches, jewellery, diamonds and precious stones, and
household electronics.
Note: The data values have been indexed to Exclusive holiday packs.Source: T.O.P. India - Kotak Wealth & CRISIL Research
Ultra HNIs prefer to spend more on products meant for the familyA significant portion of overall expenditure goes into customised holiday packages, luxury watches, jewellery, and household electronics.
Luxury writing
instruments56
Home decor /Crystals
57
Jewellery /Precious stones
90
Apparel /Accessories
73
Householdelectronics
90
Exclusive holiday packs
100
Luxury watches
98
Art /Artefacts
36
Vintage spirits
52
26 T.O.P. India - Kotak Wealth & CRISIL Research|
Home decor / Crystals
Jewellery / Precious stones
Household electronics
Luxury watchesExclusive
holiday packs
82%
17%1%
57%
37%6%
56%
43%1%
54%
44%2%
41%
58%
38%
59%3%
Vintage spirits / Liquor
Apparel / Accessories
Luxury writing instruments Art / Artefacts
67%
28%5%
42%
58%
39%
61%1%
BothPlanned Impulse
Source: T.O.P. India - Kotak Wealth & CRISIL Research
Big-ticket spends are planned in advance, often with family involvementIn most purchases, such as holiday packages, luxury watches, jewellery, household electronics, and home décor, the family plays a paramount role, considering the huge spends involved.
Planned versus impulse purchase
an overwhelming 88 per cent of the Inheritors said the
choice of destination and the length of the holiday was determined in
consultation with others in the family, and the numbers were similarly
high for Professionals and Self-made at 85 per cent and 79 per cent,
respectively.
Our survey grappled with one key question: what is the nature of ultra
HNI spending? The answer: Largely planned. In most purchases, such as
holiday packages, luxury watches, diamonds and jewellery, household
electronics (which include premium mobiles and high-end cameras),
and home décor, the family plays a paramount role, considering the
huge spends involved.
For instance,
In fact, the influence of the spouse or the children on such purchases is
so profound that many of the respondents could not recall what their
last such high ticket purchase was, because it was not a purchase driven
by their own particular whim or fancy, but was more the result of family
deliberations.
For the most part, price is not really a primary consideration for the
Inheritor and the Self-made, whereas value for money is a major factor
for the Professional, the older and semi-retired.
Planned buying is usually led by need; therefore, there is a tendency to
also deliberate on factors such as quality and durability of the product,
particularly in Indian climates, exclusivity, brand and newness of the
model.
Although the preference is for well-known brands, the ultra HNI is not
averse to bargain purchases.
Apart from these categories, most buying is impulse-led. “Most
purchases are spontaneous, something catches the eye and I pick it up.
I can’t recall the purchase time and price,” one respondent observed.
There are certain distinct factors that guide a planned purchase.
Because they tend to be big-ticket items and involve consensus
decision making in the family, appeal and price are important factors in
such purchases.
T.O.P. India - Kotak Wealth & CRISIL Research 27|
Impulse purchases are spur-of-the-moment buying, guided by a mix of
appeal and whim.
New York Herald founder James Bennett once discovered – and began
to frequent – a restaurant in Monte Carlo that he said boasted a perfect
mutton chop. One evening, Bennett arrived to find someone seated at
his favourite table.
His solution? He immediately purchased the restaurant (for $40,000),
asked the diners at his table to leave (even though they were only
halfway through their meal), finished his meal (mutton chops), and
returned the restaurant to its previous owner.
Despite ease of use and convenience, whether goods can be purchased
online or not is not a major determinant while shopping.
The online route is overwhelmingly used by all – nearly 90 per cent of
Inheritors, Self-made and Professionals replied in the affirmative – in
purchasing of air tickets, and holiday bookings. To a lesser extent, it is
also used for purchase of hi-tech gadgetry, apparel and
accessories.
One major dissuading factor for online purchases is the fear of credit
card fraud. So, even in the case of booking of travel tickets and holiday
packages, a majority of the respondents said that to feel safer during
online purchases they tend to use their corporate credit cards rather
than their personal cards.
Impulse purchases are usually done at the airport (duty-free shops) or
while travelling and purchases are made largely on how eye-catching
the product is. Other factors guiding impulse buying are the brand, the
newness of the product, and exclusivity. Critically, need for the product
is not a factor; but having cash in hand is.
The Inheritors are the most comfortable doing online shopping,
among the three categories. Additionally, across categories, it appears
to be more popular among the younger lot.
All work and no play makes Jack a dull boy. True to adage, the ultra HNIs,
many of whom have slogged it out, or continue to toil hard, in the
workplace to reach the heights that they have, ranked vacationing as
their topmost priority.
Unlike the Inheritors or the Self-made, who own businesses and
perhaps employ others in large numbers to run them, workplace
burnout is an indisputable factor of the Professionals. Perhaps
reflecting this dichotomy, nearly 67 per cent of the Professionals
confessed that their biggest weakness was exclusive luxury holiday
packages, as compared to 65 per cent and 54 per cent respectively, for
both the Inheritors and the Self-made.
Travel
A majority of the ultra HNIs travel at least twice a year, while about 15-
20 per cent of the Inheritors and the Self-made travel thrice or more
Professionals have a penchant for travel
Overall
Inheritors
Self-made
Professionals
100
143
94
91
Note: Data values for the three ultra HNI profiles are indexed to Overall. Source: T.O.P. India - Kotak Wealth & CRISIL Research
28 T.O.P. India - Kotak Wealth & CRISIL Research|
Note: Data values for the cities are indexed to All India.Source: T.O.P. India - Kotak Wealth & CRISIL Research
Ultra HNIs in Mumbai spend far lesser on travel
116Other cities
Delhi99
Bengaluru99
All India100
Mumbai91
annually. For the Inheritors and the Self-made, the most common
reasons for travel abroad are family functions, business purposes, or
leisure, not necessarily in that order. For the Professionals, it is mostly
either conferences, business trips or vacations (including leisure, sports
or entertainment events).
The average stay of travel overseas, particularly if it is for sightseeing, is
1-2 weeks. Weekends or short 3-4 day breaks are increasingly being
used for quick getaways within the country, even within familiar
surroundings, if only to take a break from the monotony of routine
work.
“Sometimes, we just move to the Taj over the weekend and chill out. My
kids carry their cycle and toys. It is good fun. Completely disconnected
from work, but you are still in familiar surroundings,” a Mumbai-based
ultra HNI remarked.
A majority of ultra HNIs travel abroad at least twice a year
Source: T.O.P. India - Kotak Wealth & CRISIL Research
36%
10%8%
13%
33%
54%
T.O.P. India - Kotak Wealth & CRISIL Research 29|
11.1%
11.1%
Once a year Twice a year Thrice a year More than
thrice a yearNo fixed
frequency
1-2 days
3 days - 1 week
1 - 2 weeks
More than 2 weeks
Not fixed
33.4%41.6%59.2%54.5% 76.9%
24.2% 15.4% 22.2%
22.2%
41.7%30.0%
6.1%2.5%
15.2% 8.3% 7.7% 16.7%
Source: T.O.P. India - Kotak Wealth & CRISIL Research
Average duration of stay is 1-2 weeks, regardless of the frequency of overseas travel
30 T.O.P. India - Kotak Wealth & CRISIL Research|
Interestingly, economy class appears to be the most preferred mode of
travel overseas for both the Inheritors and the Self-made; while nearly
70 per cent of the Inheritors and 64 per cent of the Self-made said they
travel economy class, nearly 70 per cent of the Professionals said they
travel business class.
That may appear a trifle peculiar, but is nonetheless easy to understand
if one considers that the Professionals travel mostly for conferences or
business purposes, which is generally paid for by the company.
Moreover, the economy class is favoured for short flights overseas,
whereas the business class is the preferred choice for long flights. For
short holidays within the country, most ultra HNIs choose to drive to
their destinations.
Besides, in the case of the Inheritors, accustomed as they are to setting
the standards, there really is no one that they need to emulate or look
up to. Even after he became America's first billionaire, John Rockefeller
chose to operate from a very spartan office. When a curious visitor once
asked him how he expected to impress anyone with an office such as
his, Rockefeller retorted: "Who do I have to impress?"
The motives for vacationing are diverse. Many of them, particularly
those who are still active in their businesses, want to get away,
anywhere, to relieve themselves of the tedium associated with work
and come back rejuvenated, while others, particularly the younger
ones, indulge individual tastes such as scuba diving, photography,
landscape and the environment and choose the locale accordingly.
“I chose a wine chateau in France for my holiday. Staying and driving
along the countryside was a wonderful experience,” one of the
respondents recalled.
For some others, it is the sheer pleasure of gambling. “Every time I travel,
if there is a casino, I gamble. I have made my share of profits there. Why
not?”
“If I am visiting my daughter, my holidays last for a month; otherwise, in
other destinations, it is usually a couple of weeks,” according to another
ultra HNI.
The potential market size of the luxury vacationing industry (includes
hotels, fine dining and travel) was estimated to be ` 234 billion as of
2010-11. An average ultra HNI takes at least two holidays per year – one
short and one long. During these holidays, he spends money on
business or first class air travel and best-in-class luxury hotels.
Associated as they are with wealth, premium lifestyle, and brands, it
should come as no surprise that luxury watches are a coveted item for
ultra HNIs.
For those born into wealth, a luxury watch is a thing to be flaunted; a
status symbol, the hallmark of a complete man. It is marginally less so in
the case of a professional, and the numbers reflect that.
Nearly 74 per cent of the Inheritors and 55 per cent of the Self-made
professed their inclination to buy a luxury watch, whilst only one-third
of the Professionals did so. Predictably, the preference appears to
decline with age, with only 33 per cent of those above 55 years
spending on it compared with 74 per cent of those under 40.
Ostensibly, even among the supra-rich, the motivation to display and
impress diminishes as one grows older. A majority of those surveyed,
said they owned 2-5 or more luxury watches. Rolex, Omega, Rado,
Cartier, Piaget, Breguet, Jaeger Le Coulture, and Girard Perregaux are
sought-after brands .
India’s potential luxury watch market was an estimated ` 15 billion in
2010-11. A majority of luxury watch purchases in the country take place
Luxury watches
Even in this high-tech age, luxury watches still easily outrank
expensive electronic gadgetry such as luxury mobile phones in terms
of aspiration.
T.O.P. India - Kotak Wealth & CRISIL Research 31|
Luxury watches are a coveted item for Inheritors
Note: Data values for the three ultra HNI profiles are indexed to Overall. Source: T.O.P. India - Kotak Wealth & CRISIL Research
96
109
73
100
Inheritors
Overall
Self-made
Professionals
in Mumbai or Delhi, although the aspiration for them is quite high in
other Tier I and Tier II cities.
Indians, regardless of age, class, or wealth, have always been enthralled
by jewellery. Because of its dual utility as an investment, the fascination
with it has not shrunk remarkably even during times of economic
turmoil.
Weddings and special occasion purchases and the ability of high value
diamonds and jewellery to act as a store of value make this market a lot
more resistant to ups and downs.
The ultra HNIs are no exception to this.
Wearing jewellery is the most common form of display of wealth and
social status.
Jewellery and precious stones
It is, therefore, not surprising that the Inheritors and the
Self-made spend more on jewellery than the Professionals. The more
prosperous you are, the more the jewellery on your person.
Jewellery – a traditional fascination for Inheritors
Note: Data values for the three ultra HNI profiles are indexed to Overall. Source: T.O.P. India - Kotak Wealth & CRISIL Research
110Inheritors
93 Self-made
100Overall
80Professionals
Note: Data values for the cities are indexed to All India.Source: T.O.P. India - Kotak Wealth & CRISIL Research
Ultra HNIs in Delhi are relatively the biggest spenders on jewellery
Other cities109
100All India
91Bengaluru
111Delhi
Mumbai93
32 T.O.P. India - Kotak Wealth & CRISIL Research|
The potential market size of luxury jewellery was estimated at ` 229
billion in 2010-11. According to industry estimates, luxury jewellery is
almost 15 per cent of the total diamond jewellery market.
The really top end of the luxury jewellery market, dominated by leading
family jewellers and independent jewellery designers, would be large
high-quality solitaires (over 3 carat) and high-end, diamond-studded
jewellery (over ̀ 1 million per piece).
Major global brands such as Cartier, Chopard, and Tiffany have been in
the country for a while now. However, given their limited range, lack of
custom-made designs and reluctance of Indians to pay a premium for
designer jewellery, their impact on the market has so far been muted.
Today, however, there is an increased awareness and focus in the Indian
jewellery industry on design; apart from designers, theme-based
collection designers too are drawing clientele. Top family jewellers, in
particular, focus on this segment a lot more. The jewellery industry in
the country has traditionally operated on the basis of trust, and those
having historical relationships with wealthy families do have a
significant advantage.
Driven by the complementarity of the luxury jewellery market with the
apparel market, fashion designers have increasingly turned their
attention to the former segment. The demand for luxury jewellery in
the country is virtually insatiable, and unlike other luxury products, this
market is more evenly distributed, with demand high in cities such as
Kolkata and Chennai.
Although owning a car is now a necessity, a luxury car such as a
Mercedes or BMW is still used to send out an “I have arrived” lifestyle
statement. Luxury cars are those with an on-road price of ` 2.3 million
or above.
Luxury cars
In February last year, in Aurangabad, while working out at a gym, a city-
based property developer shared with a couple of friends his
childhood dream of owning a Mercedes. He suggested that all his
friends should also join in.
"We laughed it off as we were not sure of even 11 people joining the
bandwagon. But he continued to pursue the idea wherever and
whenever he got an opportunity," reminiscences one of the buyers.
The initiative burgeoned into a deal with Mercedes that was negotiated
at the company’s headquarters in Germany. The result: Last October,
150 Mercedes were sold on one single day to a group of buyers in the
city comprising doctors, builders, industrialists and professionals.
The aim, in this instance, was to showcase the city’s wealthy while
simultaneously availing of discounts pursuant to the mass booking.
Most ultra HNIs own a number of cars to suit their diverse needs.
Some of the popular brands, our survey revealed, were Honda,
Toyota, Mercedes, BMW, Audi, Skoda, and Hyundai. On an average,
the Inheritors own 3-4 cars, while the Self-made and the Professionals
own 1-2 cars each.
In terms of “aspirational” cars, an overwhelming favourite is the SUV
(sports utility vehicle) or the crossover SUV, perhaps in part because of
the rugged, macho image associated with it, coupled with the fact that
it is ideal for short family holidays in nearby locales. Another sought-
after model is a sports car or a roadster. Interestingly, the Professionals
showed the greatest desire to own an ultra-luxury car, while the
younger Self-made ultra HNIs prefer an SUV.
For regular use in cities, Japanese cars are preferred because they are
trusted for Indian roads. Among the younger Self-made, luxury cars are
a definite style message.
T.O.P. India - Kotak Wealth & CRISIL Research 33|
11%
5%MITSUBISHI
MAHINDRA12%MERCEDES 17%
11%
31% 24%
9% 6%
Source: T.O.P. India - Kotak Wealth & CRISIL Research
Japanese brands – the most trusted cars for Indian roads
Other brands
Note: Ultra HNIs have multiple car ownership. Hence, the percentage values do not add up to 100.
64%HONDA 52%TOYOTA 36%SUZUKI(MARUTI)
6% TATACHEVROLET FORD VOLKSWAGEN
BMWHYUNDAI SKODA
The potential size of the luxury car market was estimated at ` 140-150
billion as of 2010-11. Luxury car sales have grown at a CAGR of 22 per
cent over the last three years (2008-09 to 2010-11). This growth is
mainly attributed to the entry of new luxury car players in India,
increasing spending propensity of the customers, easy availability of
finance and improving economic scenario. India being a growth
market, players have focused on increasing sales in the country and
thereby have enhanced their dealership network considerably. For
instance, Audi has enhanced its dealer network to more than 15 dealers
with BMW having more than 20 dealers across the country as of
2010-11. This has aided the growth of the luxury car market
considerably.
The growth in the luxury car market has also been driven by a number
of new model launches, and an increase in the spending propensity of
customers has led to high demand for luxury vehicles. Also, attractive
34 T.O.P. India - Kotak Wealth & CRISIL Research|
Note: Data values for the cities are indexed to All India.Source: T.O.P. India - Kotak Wealth & CRISIL Research
Ultra HNIs in Bengaluru relatively the lowest spenders on household electronics
All India
100
Mumbai
Bengaluru
Other cities
Delhi
100
109
9896
equated monthly installments (EMI) schemes by financiers that help
reduce the EMI for customers has led to easy availability of finance,
thereby leading to high growth in the luxury car sales.
In today’s high-tech era, marked by rapid changes in technology and
constantly evolving products, it is obvious that many high-priced items
that enhance and complement personal lifestyles will hold sparkle for
those who can afford them.
Although it would be fair to say that all ultra HNIs spend a great deal of
money on high-end electronics, the Professionals stand out in this
respect; their spend on household electronics is next only to
holidaying. This is ostensibly because of their familiarity and ease with
technology; due to their education and work profile, many of them
have encountered or own similar products and are seeking to upgrade
them to match their lifestyles.
“As you age you don’t want to spend on frivolous things. You are more
into buying things which will last for long, you want to spend more on
having good experiences like holidays,” one older ultra HNI
underscored.
In India, household luxury electronics is a vast segment that includes
high-end home entertainment systems – 55” or larger television and
sound systems from brands such as Bang & Olufsen; custom-built
entertainment rooms or theatres costing upwards of ` 1 million and
high-end mobile phones from luxury brands such as Vertu. An
emerging trend in this sector is that of home automation, wherein
Household electronics
Born into the information age, the younger generation is particularly
comfortable and hands-on with technology, and that is reflected in
their higher spend on such items. The older ultra HNI is more likely to
purchase them as gifts to family or friends, rather than for personal use.
appliances and gadgets at home can be operated through remote
control.
The potential luxury electronics market in India was estimated at ` 51
billion in 2010-11. Although the market in India for luxury mobile
Household electronics resonate more with Professionals
Note: Data values for the three ultra HNI profiles are indexed to Overall. Source: T.O.P. India - Kotak Wealth & CRISIL Research
llarevO
srotirehnI
slanoisseforP
edam-fleS
133109
100
86
T.O.P. India - Kotak Wealth & CRISIL Research 35|
Note: Data values for the cities are indexed to All India.Source: T.O.P. India - Kotak Wealth & CRISIL Research
Ultra HNIs in Mumbai are bigger spenders on apparel and accessories
Mumbai119
All India100
Bengaluru100
Other cities92
Delhi84
phones is still niche, albeit a growing one, there is huge demand for
home entertainment units, whose demand is closely correlated to the
demand for luxury homes. It has been observed that people who
purchase large homes or bungalows typically convert one of the rooms
into an entertainment centre with the assistance of interior designers
who also help source the various components such as the television,
audio systems, blu-ray players and gaming consoles, as well as design
the aesthetics of the rooms.
This market extends beyond the metros to emerging Tier I cities such as
Bengaluru, Chennai, Hyderabad, and Ahmedabad. Although
purchasing behaviour varies from place to place, buyers in the larger
cities or metros are more brand-aware and engage in a lot of due
diligence before buying these products. In smaller cities, purchases are
driven more by the ‘I want one too’ attitude.
There is a high import duty on such goods, due to which grey market
purchases in the segment are appreciable.
Dressing nattily is a common human trait, and the degree of spending
on them differs only on the basis of individual preferences. Inheritors,
having grown up in an atmosphere of luxury, are more knowledgeable
about international designer brands and tastes are sometimes
developed at a far earlier age.
Price is never the dominant consideration for Inheritors while buying a
dress; brand is. Most of our respondents from the Inheritor category
indicated that they were drawn towards, and more aware of,
international designer brands and utilise their overseas visits to
purchase their favourite brands. “I have not shopped in India for the last
10 years,” one of them remarked.
Apparel and accessories
“The same international brands in India don’t have the same range,
so I pick them up when I travel overseas. Also, apparel, especially
international, better to buy them abroad. The range, the cut, the finish,
is better there, even the price.”
The Self-made mirror the mindset of the Inheritors to some extent,
although the younger ones among them, for reasons such as greater
networking, are bigger spenders on clothing and accessories
compared with the older lot.
The three big segments of the fashion luxury apparel market are the
international branded apparel, Indian designer wear, and accessories.
The market is segmented on the basis of wear occasions.
International brands cater to casual wear, formal western wear, and
accessories, while Indian designers cater to the traditional, ethnic wear
market. International brands, with the exception of Canali, have by and
large stayed away from the Indian wear market.
The Professionals spend a relatively lower portion of their income on
dressing, and they show no particular proclivity towards either
domestic or international brands.
36 T.O.P. India - Kotak Wealth & CRISIL Research|
Note: Data values for the three ultra HNI profiles are indexed to Overall. Source: T.O.P. India - Kotak Wealth & CRISIL Research
Professionals show the lowest inclination to spend on branded apparel and accessories
107Inheritors
100Overall
77Professionals
100Self-made
Indian designers have experimented with western formal and casual
wear, but their success rate is hardly anything to write home about.
There are no major success stories among global brands in India as yet
either, although the general perception is that the chances of being
successful are closely related to the awareness of the brand.
In contrast to mature markets, the apparel market in India for men is
much larger, constituting around 50 per cent, and has seen the entry of
several brands including Louis Vuitton, Burberry, Gas, Versace, and
Armani. Some of them forayed into the country in collaboration with
more active Indian partners such as Murjani Group, Sachdeva Group,
Raymonds and DLF, and the results of these brands have been mixed –
while some have been fairly successful, some have exited as well.
There are some multi-brand players as well – The Collective by Madura
Garments, for instance. Most of these brands have ventured out of five-
star hotels, which was their first footprint, into luxury malls and the high
street. Market growth has been aided by the presence and expansion of
these brands.
The industry sees the success of certain brands as an indication of the
maturing of the consumer, and the latent demand for luxury apparel,
which is being buoyed by fashion shows, new luxury store launches
and end-of-season sales, and price competitiveness (compared with
international prices).
The potential market for apparel and accessories in India was estimated
at ` 64 billion as of 2010-11, and its mainstay is Indian traditional wear,
sarees and designer wear, particularly for weddings and personal
collections. Most designers today have their own exclusive boutiques,
either in five-star hotels or even in luxury malls.
Accessories are a very attractive segment of this market, and its
potential is huge. Because of the standard nature of these products –
such as handbags, belts, sunglasses and cuff-links, which are fast
moving items – certain global brands have done well in the domestic
market.
As people grow richer, they are finding newer ways to splash their
money around.
And where do Indians like to spend the most? The Big Fat Indian
Wedding, where else! The wedding planner has arrived in India, and in a
big way. And destination and theme weddings are the in-thing on the
circuit. So, marriage in Canada, reception in Morocco, and honeymoon
in Thailand is not a novelty anymore.
New trends in spending
T.O.P. India - Kotak Wealth & CRISIL Research 37|
Note: Data values for the cities are indexed to All India.Source: T.O.P. India - Kotak Wealth & CRISIL Research
Ultra HNIs in Mumbai relatively the highest spenders on home décor
Mumbai118
Other cities107 100
All India83
Bengaluru91
Delhi
Destination weddings, in fact, are a hot favourite with the super rich,
and event management companies are combining with the super rich
to make it an affair to remember, never mind the expense.
Another attended a wedding on a ship in Australia.
Theme weddings too are an interesting variant. The Trang underwater
wedding ceremony in February in Thailand is one such, or the sky-
jumping wedding. Or even a beach wedding in Hawaii, or wedding
celebrations spread over different days in different venues.
The wedding ceremony of a model and actress with a hotel magnate
was spread over 10 days in three different cities in India. The multi-
million dollar celebration involved 600 guests from 26 countries being
ferried around on chartered jets.
Chartering aircraft is not confined to weddings alone. In a cricket crazy
nation, friends sometimes charter flights in groups to attend cricket
matches, such as the World Cup semifinal between India and Pakistan
in Mohali.
“My friend had a wedding abroad, and for guests who couldn’t travel
with them (the wedding party), arranged for live video streaming,” one
of them said.
Even losing has its virtues, apparently. One ultra HNI talked about how
you can be an angel investor, invest in a number of companies, and
then boast at parties about how much was lost in the ventures!
Further, partying has also become more frequent. People are not
averse to having weekday parties, with larger groups and “on the
house” parties. “Earlier, people used to spend on expensive liquor for
small gatherings or for close friends, but now even if there are 3,000
people attending, vintage wines and expensive spirits are being
served,” one of them commented.
Owning aircraft and yachts has also become popular, although
teething infrastructural problems such as ports for berthing, and
bureaucratic hassles are discouraging factors. One of India’s billionaires
owns four yachts. Another is believed to have purchased some islands
in Lakshwadeep, and a luxury mansion on a secluded island off the
coast of Cannes.
Some of our respondents said they had even spent a considerable
sum of money on storing their stem cells.
In short, the dictum is: Have money, will spend.
Note: Data values for the cities are indexed to All India.Source: T.O.P. India - Kotak Wealth & CRISIL Research
Ultra HNIs in Delhi and Bengaluru spend relatively lesson luxury writing instruments
Other cities120
Mumbai114
All India100
Delhi85
Bengaluru85
38 T.O.P. India - Kotak Wealth & CRISIL Research|
Driven by a slew of factors, the number of ultra HNIs in India has
leapfrogged in the last decade or so. And so has their wealth.
The average rise in the income of ultra HNIs has been much stronger
than that of an average Indian, having grown in the high double
digits over the past 5 years due to ESOPs and other innovative salary
structures, strong corporate performances, buoyant capital markets,
and the considerable return on investments.
There is another aspect that sets the ultra HNIs apart from the average
individual. Even though they may be supremely wealthy by normal
standards, ultra HNIs carry their unquenchable (corporate) thirst for
growing their business into their personal wealth too.
So, a businessman willing to bet millions of dollars on purchasing a
failing business is unwilling to show the same gumption when
it comes to investing his own wealth in riskier asset classes. This is
probably because the primary motive, our survey found, behind
investment (including, perhaps, tax planning aspects) is legacy for the
family, social security and regular income; growth comes later, quite
unlike in business, where growth, and not protection, is the
chief objective.
With the safety of their personal wealth paramount in the minds, it is
but natural that many of the ultra HNIs reiterate their desire to maintain
close control over their assets.
“I would rather invest in my own technology-related business or real
estate; why should I put money in something where I have no control,”
one of our respondents commented, when queried about this
perceived risk aversion.
But our survey on
investment patterns revealed a very interesting dichotomy: as a class,
the ultra HNIs uniformly exercise a far greater degree of caution when
it comes to their investments compared with the kind of risks they
are willing to undertake in their businesses. The difference among
them is only in terms of degree, when it comes to risk aversion.
INVESTMENT
It is interesting to note from our survey that the key source of personal
wealth is success in primary business; 72 per cent of the respondents
cited it as a key influence on wealth accumulation. This is followed by
investment in real estate (63 per cent of the respondents). And there is a
tie for the third spot with 43 per cent of the respondents each stating
that inheritance and investment in equity were the next key influencers
for wealth creation.
Around 78 per cent of the Inheritors and 91 per cent of the Self-made
cited success in primary business as the major factor. Moreover, for
73.5 per cent of the Inheritors, 58 per cent of the Self-made, and
44 per cent of the Professionals, investment in land and properties
has been the key source of wealth.
Earlier, inherited and landed assets dominated the wealth landscape;
today, it is enterprise and business ownership that have emerged as
the dominant source of riches. In India, though, enterprise culture is
a more recent phenomenon.
Some of the new ultra HNIs are those who have sold businesses and
never felt the need to work again. It is not only in the perceived boom
areas, such as information technology and telecom, that big money
is being made; pharmaceuticals, shipping, manufacturing which are
some of the most traditional industries in the world, have also made
people wealthy.
Not surprisingly, in view of the stated primacy they attribute to
protection of wealth, all the three ultra HNI profiles – the Inheritors, the
Self-made, and the Professionals – save nearly a fifth of their total
income, and invest close to another one-fifth to multiply their personal
wealth.
The choice of asset classes, of course, varies, in accordance with the
requirement. “It depends on what stage you are in your life cycle. For
example, if your kids are small, you invest mainly because you have
to provide for their education, luxury lifestyle and marriage. Once you
40 T.O.P. India - Kotak Wealth & CRISIL Research|
Inheritance / Rich benefactor
Success in primary business
Investing in land and property
Investing in equity
By diversifying into different / allied business
Income through job / salary
Consistent saving in low-risk investments
Income from sale of business
Enterprise, business ownership and a successful career have emerged as the dominant sources of wealth
Agricultural / Tea plantation income
Lottery / Gambling
Others
ESOPs in the company
100
88
83
55
35
32
27
23
17
5
3
3
Source: T.O.P. India - Kotak Wealth & CRISIL Research
103
65
33
40
8
15
33
8
3
3
29
50
59
13
97
17
13
4
67
Inheritors Self-made Professionals
Note: Indexed to Inheritance income for the Inheritors
T.O.P. India - Kotak Wealth & CRISIL Research 41|
19.3%
20%
6.3%
3.9%
22.4%
28.4%
19.7%
Investment for growing personal wealth
Savings
Expenses
Investment in primary business
Charity / Philanthropy
Others
Source: T.O.P. India - Kotak Wealth & CRISIL Research
Ultra HNIs invest one-fifth of their income for growing their wealthBut they put a greater proportion back into their business to fuel the engine of wealth creation. This stems from a desire for a sense of control. Most ultra HNIs would rather invest in their own business rather than in instruments where they have no control.
are comfortable having saved enough, then your goals are totally
different,” one of those surveyed elaborated.
This is not to suggest that ultra HNIs are conservative when it comes to
investing. Far from it. Vis-à-vis others, the ultra HNI is generally willing to
take more risks in the hope of better returns. The difference, as noted
contextually earlier, is only in terms of degree.
In recent times, possibly due to increased exposure to a greater variety
of investment products, many ultra HNIs have displayed the propensity
to be more sophisticated in terms of the breadth of their investments.
More ultra HNIs are also now investing in vehicles that are generally
considered to be at the riskier end of the financial spectrum, such as
hedge funds, private equity, structured products and derivatives.
Of the three, the Inheritors tend to protect their wealth by diversifying
their holdings. Inheritors interviewed for the survey indicated that
they distribute their investments across asset classes, with a
greater emphasis on real estate – about 40 per cent – and equity –
about 30 per cent. Probably because they are very comfortable relying
on professionals to run and grow their business, the Inheritors readily
take professional advice on their investments. They have teams of
wealth managers, chartered accountants, financial planners and
lawyers to manage their investment portfolios.
The Self-made, on the other hand, deploy the lowest proportion of
their income on investments to grow their wealth. According to our
market research, while both the Inheritors and the Self-made deploy
around 19 per cent of their income on investments, the Professionals
deploy around 22 per cent. In terms of being involved in planning their
investments, the Self-made are also likely to be the most involved,
among the three types, in planning their investments, followed by
the Professionals and the Inheritors. As they are more comfortable
with people rather than organisations, the Self-made develop personal
equations with specific chartered accountants, wealth managers, and
private financial advisors and take their advice.
42 T.O.P. India - Kotak Wealth & CRISIL Research|
Compared with the others, the Self-made also tend to take calculated
risks with their investments. For instance, they are likely to have the
highest proportion of investments on alternate assets such as private
equity stake in businesses. However, they balance such investments
with relatively less risky instruments such as fixed deposits and
insurance policies.
The Self-made largely invest only in instruments that they best
understand. “God has stopped making land, so property is where
one should invest,” one Self-made ultra HNI said.
Their tendency to take measured risks is also apparent in their choice of
real estate assets – a mix of real estate assets such as holiday
homes, commercial buildings and agricultural land and plantations,
apart from apartments and villas.
For the Professionals, our survey reveals, social security and regular
income are key investing goals. They route three-fourths of their
investments into financial assets, primarily equity and debt. They have
the largest proportion of investments in equity. The remainder one-
fourth is invested in real estate, a pattern which they share with the
Self-made.
Our survey showed interesting trends in the investment preferences
and future investment plans of ultra HNIs. The survey compared
the assets in which respondents are currently invested in with their
investments over the past one year and their planned investment
over the next one year.
Two trends were noteworthy.
1) There is expected to be a cyclical move away from equities.
2) Respondents expressed a desire to increase their exposure
towards alternate or less traditional asset classes, such as hedge
funds, private equity, and derivatives.
In terms of the current investment pattern of ultra HNIs, 37.2 per cent
of the investable surplus is deployed in real estate, followed by
33.1 per cent in equity, 20.4 per cent in debt and the balance
9.2 per cent in alternate assets.
The Inheritors have a distinct preference for real estate with 40 per cent
of their investments in this asset class. This is markedly different from
the investment pattern of the Self-made and the Professionals who
Alternate assets
Source: T.O.P. India - Kotak Wealth & CRISIL Research
Debt
Equity
Real estate
Professionals put the largest chunk of investments in financial assets
31.9% 31.0% 39.7%
8.5% 11.1% 8.1%
40.3% 39.1% 26.4%
19.3% 18.8% 25.8%
Inheritors Self-made Professionals
T.O.P. India - Kotak Wealth & CRISIL Research 43|
currently have just a little over a quarter of their investments in real
estate. In terms of the investment pattern a year ago, the Self-made
have pruned their real estate investments significantly from 42.7 per
cent then to 26.5 per cent currently.
Our survey also suggests that regional biases to investment still
remain. Wealthy investors in Delhi and Bengaluru are more focused
on amassing portfolios of property (Delhi - 50 per cent of ultra HNI
investment is in real estate followed by Bengaluru at 37 per cent) as
indicated by their current investment pattern, whereas the ultra HNIs
in Mumbai are far more likely to put money in equity (37.2 per cent of
ultra HNI investment in equity).
Risk averse they well may be, but ultra HNIs can spot an opportunity
if they see one. Unsurprisingly, therefore, ultra HNIs of all hues have
been drawn to less traditional asset classes, even if they do not quite
understand them, given the proliferation of such products in recent
times. Hence, the growing popularity of hedge funds, private equity,
derivatives and the like.
Despite this appetite for alternate asset classes, only around half of
the respondents professed confidence in their knowledge and
understanding of them.
Around 55 per cent of the interviewees said they were comfortable
with leaving the more mainstream aspects of personal finance, such as
estate planning or retirement planning, to their wealth managers.
32.2%Equity
Land and property hold greater attraction for
ultra HNIs in Delhi
Bengaluru
Source: T.O.P. India - Kotak Wealth & CRISIL Research
Mumbai
22.8%Debt
7.9%Alternate
assets
37.0%
Real estate
23.2%Equity
37.2%Equity
17.4%Debt
9.3%Alternate
assets
Delhi
50.1%
Real estate
21.2%Debt
8.8%Alternate
assets
32.8%
Real estate
Source: T.O.P. India - Kotak Wealth & CRISIL Research
Risk-return profile of asset classes
Debt
Real estate
Mutual fund
Private equity
Portfolio management
services
Cash
Equity
Return
Risk
Bullion
Wealth advisory
Fixed deposit
44 T.O.P. India - Kotak Wealth & CRISIL Research|
This lack of knowledge is perhaps the reason for the increased
willingness to seek advice from professional investment managers.
Previously, most ultra HNIs invested in a few asset classes, using local
brokers, chartered accountants, or tax consultants. Also, traditionally,
the wealth management market in India was served by those that
cross-sold mutual funds and banking products to the rich.
One reason for this is structural – most of these investments carry a
minimum investment that is sufficiently high to restrict them to the top
wealth brackets. Another reason is diversification of risk. Adding some
private equity, hedge fund or derivative exposure to a portfolio can
help to diversify overall levels of risk by spreading it across a wider
range of assets. More interestingly, these specific financial instruments
are expected to deliver better financial returns and help cushion
investors against volatility in the market.
Investment advice from professional sources is most sought after
55.0% Wealth managers
50.4% Self
42.7% Friends / Family
39.7% Chartered accountants
34.4% Private financial advisors
19.1% Media
13.0% CFO
12.2% Broker
9.2% Others
8.4% Lawyers6.1%Family office
Source: T.O.P. India - Kotak Wealth & CRISIL Research
Note: Ultra HNIs rely on a multi-profile team of advisors. The percentage values of the various categories therefore do not add up to 100%.
Ultra HNIs investments in alternate assets to increase
Alternate assets
Source: T.O.P. India - Kotak Wealth & CRISIL Research
9.3% 11.2%
20.4% 18.2%Debt
Equity 33.1% 30.1%
9.5%
20.8%
31.6%
38.1% 37.2% 40.5%Real estate
2009-10 E 2010-11 E 2011- 12 P
E: Estimated P: Projected
T.O.P. India - Kotak Wealth & CRISIL Research 45|
Blood thicker than water?In an era in which entrepreneurship and enterprise are becoming
increasingly well-trodden routes to wealth, and in which ultra HNIs
such as Warren Buffett and Bill Gates have decided to leave the vast
majority of their estate to charitable causes, it may be tempting to
conclude that the desire to leave wealth for the next generation is
becoming less prominent. Such temptation, our survey indicates, is
misplaced.
While a minority contended otherwise, the desire to preserve wealth
for the future and transfer wealth to the family was fairly universal. And
it probably always will be.
“It is important in case of a family business. You would want your ideals,
legacy to continue with your blood only,” one of the Inheritors
commented.
Others were not quite so certain. While one said, “Having put in so much
hard work on building something, you need to know who will use it
finally,” another individual was more forthright. “My company is a
professionally run firm, they can always hire a new CEO,” he quipped.
Slightly under 60 per cent of the interviewees agreed that they want to
make sure they have enough money so that they can pass it to the next
generation. This is followed by social security (53 per cent of the
respondents) and the need for regular income (47.5 per cent).
Our survey suggests that the motivation to ensure financial security for
children is the highest among the Self-made, with 65 per cent of them
stating it as one of the prime motives for them to create wealth. This
perhaps has to do with the fact that they are the first-generation rich.
The Professionals, however, believe that it is not a good idea to leave
large sums of money to dependents; only 47.6 per cent of them agreed
that leaving a legacy for the family and kids is an important motivation
for them.
High profile cases aside, philanthropy seems to be only a moderate
motivation for investing. For the ultra HNIs who have inherited from a
long lineage within their family, they feel (and are often legally)
restricted with what they can do with it. As a result, they give very little
away. Our survey suggests that less than 15 per cent of the ultra HNIs
who have inherited wealth would want to give back to society. Some of
them had pretty strong views.
“I don’t believe in donating. My wife though does a lot of charity. I don’t
believe in it. Instead of giving a fish to eat, teach someone how to fish,
you will be feeding him for life,” opined one.
On the other hand, the Professionals are more likely to shy away from
passing wealth to their children; instead they are more apt to spend it
during their lifetime, and are increasingly keen to apply their business
acumen (and wealth) to the charity sector. Close to 29 per cent of the
professionals stated philanthropic causes as a goal for wealth creation
and protection.
“I believe that when you are comfortable you should ensure a few more
are also comfortable,” one Professional said.
For this group, philanthropy has often been based more around giving
time rather than money. Further, the tendency to shy from public
recognition and a clear desire for privacy characterises these
benefactors.
46 T.O.P. India - Kotak Wealth & CRISIL Research|
Charity
14.8% 15.0% 28.6%
Source: T.O.P. India - Kotak Wealth & CRISIL Research
Legacy forthe family
Social security
Regularincome
60.7%
54.1%
37.7%
65.0%
47.5%
70.0%
61.9%
33.3%
47.6%
53.3%
59.8%
47.5%
17.2%
Legacy and social security are the two most important goals of wealth creation for ultra HNIs as a whole
Inheritors Self-made Professionals Overall
Note : As the respondents gave multiple responses, the percentage values do not add up to 100%.
T.O.P. India - Kotak Wealth & CRISIL Research 47|
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48 T.O.P. India - Kotak Wealth & CRISIL Research|
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