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Look where Indian HNIs are parking their money in this summer of swings

The ultra-rich Indian, or high networth individual (HNI), is..

The ultra-rich Indian, or high networth individual (HNI), is grabbing the current volatility in various asset classes with both hands to raise allocations, says a top money manager who handles HNI assets.

While HNIs have actively raised allocations to equity, fixed maturity plans (FMP) and commercial real estate have also emerged as favourite destinations for them to park money, says Abhijit Bhave, CEO, Karvy Private Wealth.

Equally, they are spending generously on philanthropy and on overseas education for their kids.

Karvy Private Wealth defines HNI as a person with more than Rs 5 crore in investible surplus, while those with more than Rs 25 crore investible surplus fall in the bracket of ultra HNIs.

Bhave has been the CEO of Karvy Private Wealth for past three years. His previous assignments included stints with Deutsche Bank in Vietnam and India and a brief stint with HSBC.

Indias HNI population grew at 9.5 per cent to 2.19 lakh in 2016 against the global average of 7.5 per cent and Asia Pacific regions 7.4 per cent.

Individual HNI wealth in India expanded to Rs 344 lakh crore in FY17 from Rs 310 lakh crore in FY16, clocking a growth rate of 10.91 per cent against 8.50 per cent in FY16.

Rising bond yields have brought fixed maturity plans (FMP) back into the game. Indias 10-year benchmark bond yield briefly breached the 8 per cent mark on June 8 for the first time since December 2014. It hovered around 7.98 per cent on Tuesday.

For debt allocation, besides tax-free bonds, Bhave is advising his HNI clients to lock in savings at the current high yields by investing in FMPs, with AAA-paper compositions.

“We are also bullish on the commercial real estate space (pre-leased, warehousing and students housing),” he said.

Bhave, an IIM-Lucknow alumni, is prescribing a 70:20:10 kind of asset allocation to largecaps, midcaps and smallcaps in equities. “We generally suggest alternate investment fund (AIF) or PMS routes. But the exposure can also be through mutual funds,” he said.

Concerns over trade war, rising crude oil prices, outflow of investment by foreign institutional investors (FIIs), falling rupee and soaring bond yields have kept the bulls under pressure in the domestic equity market so far this year.

Going forward, higher earnings growth, effective resolution of NCLT cases, normal monsoon, credit offtake and capex should be the likely tailwind for the equity market in FY19, besides the expected 7.5-7.7 per cent GDP growth. This should be a strong precursor for higher allocation to equity.

The midcap and smallcap indices have witnessed over 10 per cent correction on a year-to-date basis this year after a big run-up in last three years.

“We believe intermittent corrections are normal for the equity market and with a 3-5 years kind of outlook, a bottom-up approach to stock picking can help build a portfolio of companies that have strong cash flows and can deliver strong earnings growth. Our allocation towards equity has not changed. We are overweight on equity as an asset class, followed by commercial real estate and neutral on the fixed income side,” Bhave told

Most HNIs are astute investors, as they are well versed on the market swings. So how are they dealing with the ongoing volatility?

To ride volatility, some investors have opted for hedged equity-related products with downside protection. “With strong global growth on the anvil, many investors have also diversified by investing in international products,” said Bhave.

Karvy Private Wealth follows an optimum risk-return portfolio approach for their HNIs investors by using hedging strategies.

“Our proprietary asset allocation model tries to identify low-risk products with optimum returns. For some of the large equity-oriented portfolios, we have already protected the downside using hedging tools. For big corporate treasuries and family offices, we share customised solutions for hedging and also for cash flow management,” Bhave said.

Karvy recently added two products in its HNI portfolio. Investors can now take active positions in diamonds in both physical and paper forms.

“The advantage of buying physical diamond through us will be authenticity and price advantage over the retail space. The international stock basket is an added attraction and advantage for domestic HNIs to actively participate in the international markets,” Bhave said.

On HNI spending habit, Karvy Private Wealth has projected a rise in discretionary spend this year, especially on diamonds. Higher HNI spending has been witnessed in branded and designer jewellery (both gold and diamond) since last year.

“As per our HNI survey last year, 43 per cent of respondents showed interest in giving back to society. They are willing to spend a proportion, varying from 0.5 to 1.5 per cent, of their wealth for charitable purposes. International education for HNI kids is on the rise and that trend would increase in the near future,” Bhave said.

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