Where are high net worth individuals and ultra HNIs investing in India?

Retail and professional participation in overall trading volumes on exchanges has seen super normal growth driven by the pandemic. Work from home, reasonable time on hand and the need to replace lost incomes have driven up direct equity trading activity amongst the retail section comprising High net worth individuals (HNIs) and Ultra HNIs in India.

As a corollary, thematic basket investments are also trending right now enabled by new age digital broking platforms like Smallcase, Zerodha, etc. that have democratised such options for all investors and enabled quick access as well. Few of them also offer premium portfolios of reputed fund managers (PMS, AIF) under advisory model at a nominal subscription fee.

Additionally, primary markets are also super active with large number of companies coming for IPOs. Taking benefit of the positive sentiments around Equities, the company promoters and existing investors are selling their stakes at high valuations via offer-for-sale (OFS). Very few companies are raising equity capital via fresh issue of shares for operations.

Given the buoyancy and rising retail mix, majority of the issues are listing at huge premium to issue price. HNIs and UHNIs are seen taking advantage of this phenomenon by leveraging their applications through the IPO financing route. This is evidenced from record high oversubscription multiples in that specific segment and the massive growth in lending books of associated NBFCs.

Seasoned HNIs and UHNIs are always on the lookout for the best options to invest their hard-earned capital. Given the lower real yields on offer in the debt mutual fund space and recent bungling of credit risk funds, MLDs, PTCs and Covered Bonds are seeing a lot of interest from this group of investors on the onshore fixed income front. Strong credit enhancement structure, top rated issuers (A/AA rated and above) and better yields have attracted HNI investors in droves. This class of instruments has recently come under RBI’s regulatory radar and could now see subdued action in future.

Another area of investing that has gained prominence in the last couple of years is start-ups and private markets. Pandemic has hugely accelerated the growth journey for many digital platform companies which were already making deeper inroads into India led by multiple reforms and demographics.

The liquidity slush and the consequent rush from the PE / VC funds has led to towering valuations in each capital raising round, leading to newer Unicorns every week. HNI’s have also joined the party and upped their investing game. Marquee angel, private equity, and venture capital funds with decent track record are locking in record capital commitments from these investors. And funds are seeing interest across the broad risk-reward spectrum – right from early-stage seed A to pre-IPO. Frenzied investor activity is also seen in in respect of companies in unlisted space especially the ones closer to IPO.

Lately, offshore opportunities have also piqued HNI investor enthusiasm. Pre-Covid, investors were not very keen on geographical diversification, but pandemic has uncovered the ‘opportunity spread’ outside India like AI, ML, VR, biotech, gaming, semiconductors, etc. In India, only public equity and debt markets have the liquidity and activity necessary to attract wider section of investors, offering limited investment options to HNIs and Ultra HNIs. But Investment Universe outside India has the required breadth and depth enabling capital allocation to both public and private markets be it in the US, Israel, Taiwan, Korea, or China.

Other benefits from global / overseas investing are - a hedge against rupee depreciation, a way to achieve lifestyle objectives like travel, retirement, home ownership, children’s education as well as access to best medical facilities.

From an Equity valuations perspective Japan and Europe are looking attractive, even as the US remains the most sought-after market for Indian HNIs and Ultra HNI investors. In case of offshore debt, the developed market real yields for investment grade and sovereign bonds are hardly enticing. Hence, investors are looking for high yield bonds, internally leveraged funds, and market-neutral strategies to generate relatively better returns.

Another trend that is catching fancy amongst HNIs and UHNIs is alternative residency options that open doors to global citizenship. ‘Golden Visa’ programs are Immigrant Investor Programs that are government sponsored and allow qualified investors and their immediate family members to obtain permanent residency in the easiest and fastest way. Investments are made in predefined avenues for a specified duration at the end of which principal is returned with some programs even offering a nominal yield.