Many of us often wonder how the wealthy Indians have accumulated and invested their wealth. What have they done right? What strategy have they adopted, and what investment products they prefer?
Real estate, equity, and gold is where most of them have invested. They have huge risk-taking appetites, have access to investment professionals and research, and they make their own rules!
WHERE THE WEALTHY ARE INVESTING
In 2019, equities remained the most preferred asset class in the portfolio with 29% allocation, followed by 21% allocation to bonds and 20% to property investments.
Traditionally, the wealthy in India (HNIs & UHNIs) have invested in real estate. That was the most preferred mode of investments, partly because it was considered safe for their capital and partly because of the status-quo.
Commercial real-estate has seen a substantial increase in HNIs fund allocation.
Equity is another segment where the wealthy are looking to increase their allocation, the preference being quality stocks and good businesses.
Fixed income/debt products have also seen higher allocation. Between 20-40% of wealth has moved to debt – with the safety of capital being the prime factor.
INVESTMENT PHILOSHPY
1. Invest in equity for long-term: As Parag Parikh said “you cannot sow something today and reap tomorrow”.
Equity investors look at long-term wealth creation. They are not driven by speculations and market fluctuations.
Long-term equity has the power to earn astounding returns if one invests carefully and has patience. One must be disciplined, invest in good businesses, and stay invested. When one can stay invested in PPF or Real Estate for 15-20 yrs, then why not Equity?
2. Identify solid companies and have faith: A common thread amongst big equity investors in India like Parag Parikh, Ramesh Damani, Rakesh Jhunjhunwala is that they identified good companies and businesses that they understood and invested in them for long-term.
Quality of the business & company is very important.
While investors such as Chandrakant Sampat advise to look for companies where the return on capital employed should not be less than 25%, others like Rakesh Jhunjhunwala look at the price-earnings ratio.
Raamdeo Agrawal on the other hand looks at QGLB: Quality, growth, longevity ad bargain value of a company.
Currently there is buying culture in Indian equities driven by speculations, not the underlying quality of a business. Successful equity investors don’t play by this rule.
According to Chandresh Nigam, “…companies which can sustain their business performance over medium to long-term are what one has to focus on.”
One can also look at businesses they have enduring competitive advantage, minimal debt, and scalable business models, run by honest owners.
3. Buy at value: Many investors believe it is important to buy at value. Invest in good businesses, yes, but also make sure you do not pay an outrageous price for them.
CONCLUSION
While each investor has a different set of goals, timelines, and risk appetite, there is a lot to learn from the wealthy in India, who have successfully invested over decades and generated an enviable amount of wealth.
