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A glimpse into HNI investment trends and what the Indian market has to offer HNIs

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Mr Bhavesh Sanghavi

CEO Emkay Wealth Management

11 Feb 2019

Current offerings and HNI’s investment trends - A glimpse of what the Indian market has to offer for HNI’s

Investment portfolios of typical HNIs consist mainly of the basic asset classes - equity and debt, and quite often, it stays like that for a long time due to the long investment horizons typical of such investors. Only in very rare cases, we get to see portfolios which are overweight in, say, real estate or even other sub-asset classes.

While the portfolio remains anchored to the basics, the other innovative products which come up from time to time, provide the icing on the cake. These include absolute return funds or long-short funds, structured credits, IPOs and Stressed assets. At best we can say that they are on the fringes, and supply the essential bridge to the portfolio for capturing or connecting to current returns.

The traditional long-only equity funds offered investors returns only when the markets rallied in a bullish phase, and the portfolios took a hit as the prices moved down. But the absolute return funds or long-short funds provide investors with more stable returns. This is achieved by selectively going short of stocks that are likely to decline in price in addition to the strategic long positions established for the portfolio. These funds are a good option at a time when the market may be in a temporary downslide due to some transitory factors. They also enjoy a good amount of flexibility, as they can crop both long and short positions, based on whether the broader market is booming or declining. The essence of their positioning is that it aids participation in the rally and at the same time protect the portfolio in times of downturn.

The total asset under management of such funds is about Rs 6500 crore Some of the funds have done quite well in terms of stable returns on the portfolio in the last two to three years, during which time, they picked up in investor confidence. Another factor which needs to be considered is that this product can occupy only a relatively small space of the overall portfolio as the benefits accruing from a structural up-move in equity markets, typically in a country like India which is expanding in GDP and market capitalization.

The room for structured credits in India is the biggest as the bank financing in this country has been very conservative restricting itself to the mundane modes of lending, and it also left a gap in the servicing of credit requirements in a growing, dynamic economy like ours. Structured credits are still done in a selective way which involves promoters, the final investors and the bankers, which often assumes the form of strategic co-investment opportunities for a select set of people. Apart from domestic HNI money, this has attracted funds from abroad too. This offers an opportunity but it carries a much higher risk compared to normal products, and also fairly longer investment horizons. Also, the amounts to be committed is also high. There are some private equity funds also which have come into the field of financing companies which are listed and which have short to medium term cash requirements. As indicated earlier these deals are at present smaller in number but could enhance if the market has sufficient liquidity.

The securitized debt market has grown by almost 125 % in the last three years, as there is no dearth of assets to be securitised including stressed assets due to the unenviable position of the banks with their huge NPAs. Apart from this, the clarity on the non-applicability of GST also helped. Securitization through Direct Assignments as well as PTCs was close to Rs.90,000 Crs in the last financial year, and the current year is also likely to witness a more or less similar amount of securitization. It is a large market waiting to be tapped but would require a significant amount of overseas participation for it to succeed. The mutual funds played a pro-active role in investing in securitised debt and pass through certificates. Larger IPOs were far and few in the last one year, but a lot of activity has happened in the MSME segment where the listing of the very small businesses take place. These IPOs as also Pre-IPOs remain relatively high-risk exposures for portfolios as there are always uncertainties on the outcomes.

While these will never be the main investment avenues for a long term portfolio for HNIs, carefully selected opportunities in these segments may enhance portfolio returns to some extent.