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Trailblazers & Trendsetters

An increasingly younger crop of ultra HNIs are quick to adopt improvements over the old way of doing things

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Ultra high net worth individuals or ultra HNIs undeniably make the world go round. They stand at the vanguard of new investment ideas, set new fashion and lifestyle trends, actually ‘create’ aspirations, and it won’t be too far-fetched to say that they define what a ‘good life’ should be. They are not only trailblazers in spending and investments, they are also leaders in social spending and philanthropy.

In India, we are seeing quite a few fundamental behavioural changes among ultra HNIs. Recent e-commerce and technology booms have added an increasingly younger crop of ultra HNIs, who are quick to adopt improvements over the old way of doing things. This is visible in their investments in renewable energy or their eagerness to adopt succession planning initiatives, a topic that was generally discussed behind closed doors not too long ago. Most ultra HNIs want to do their bit to clean up the environment and reduce their carbon footprint and have identified good business propositions in the process — for example, many of them are tying up with commercial and residential high rises to install solar panels on rooftops. Their philanthropic interests are also undergoing a visible change; most are not interested in vanilla charity. Rather, they want to invest in social entrepreneurship businesses that focus on sustenance. The ‘impact investment’ segment is growing rapidly and is likely to generate even more traction from this community in the future.

In FY16, with falling interest rates, ultra HNIs switched savings for investments into their primary businesses. Almost 60 per cent increased their business investments, while more than 40 per cent reduced their savings. They also increased their investments in personal wealth over last year, especially professionals. While equity fell out of favour, allocations into real estate, especially commercial, increased. Surprisingly, debt allocations also went up over last year, but are still much lower than levels seen in FY12-14. Almost 50 per cent of ultra HNIs invest about 10 per cent of their assets in commodities, where gold and silver, that too physical purchases, dominate. In addition to the precious metals, energy and agri-based commodities seem to be favoured for future investments.

India’s increasingly younger ultra HNI demographic spells well for spending. Armed with high disposable incomes, plethora of choices, and boundless optimism, they continued to be high spenders in FY16. A higher proportion of ultra HNIs now believe that family-related expenses such as holidays, apparel, events, and automobiles are non-discretionary. The share of jewellery, apparel, holidays, electronics, events, and art and paintings in total spending increased. The share of home décor and vintage spirits decreased, while spending on luxury watches remained constant.

A heartening trend is that India has become a top buying destination for apparel and accessories. Not too long ago, Indian ultra HNIs used to zip off to New York, Paris, Milan, or London to fulfil their sartorial needs. This is no longer necessary as global brands are trying to meet almost all their luxury requirements within India, which speaks volumes about the sway that Indian ultra HNIs now have over the global fashion industry. Luxury retailers in India have updated their portfolios significantly to cater to their growing domestic shopping preferences.

Purchasing art and paintings is a firmly established trend among ultra HNIs. While most purchases until not so long ago were purely for pleasure, they are now being increasingly viewed as good investments. A whole industry — art purveyors, auction houses, wealth managers, and galleries — is rising up to guide ultra HNIs through the tricky landscape of purchasing pieces that are not only beautiful but would also increase in value. Even today, only a third of the ultra HNIs actually engage in research before purchasing art. Since a quarter of Indian ultra HNIs, along with the corporate sector and institutions, are buying art for its resale value or as an investment, it is quite likely that this segment will see rapid development over the next few years. While average investments in art today are modest versus other luxury purchases, their ticket size is likely to grow significantly.

Along with art and paintings, purchasing collectibles, including electronic gadgets, luxury and vintage cars, sports bikes, and antiques is quite a passion among ultra HNIs. Most of these purchases are through physical channels, but online is making quite a few inroads here. Like art and paintings, collectibles are also likely to become a prominent asset class soon.

In line with the younger profile of Indian ultra HNIs, their usage of wearable devices has also increased dramatically. Almost 60 per cent of them sport at least one such device. Smartwatches, fitness bands, and VR (virtual reality) headsets are the most popular ones, especially among the children of ultra HNIs with health and fitness driving a large chunk of their purchases.

Overall, the spending and investments trends of Indian ultra HNIs remain strong and augur well for industries, segments, and services that cater to their various needs.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Jaideep Hansraj

Senior EVP & head, Wealth Management and Priority Banking, Kotak Mahindra Bank

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