Indian equities are perhaps the single most important asset class that have fuelled wealth creation in the country. In recent years share performance has been heady. Yet stocks are only for the well-to-do: only 2 per cent of India’s population currently invests in them. Of India’s twenty three stock exchanges, the two main listings are Mumbai’s SENSEX and the National NSE. In 1990, the SENSEX was hitting the 1,000 point mark, it is now at 10,000.

Growth of 1,000 per cent in fewer than 20 years looks impressive. Yet there is a caveat. Early 2008 saw the SENSEX at 21,000. The drop since then, due to world turmoil, is the largest fall the index has seen since being launched in 1875. The NSE has experienced an almost parallel rise and fall.

As the latest figures on the Indian wealthy only take into account data up to the end of 2007, the wealth and numbers of high net worth individuals is likely to rapidly diminish. This is particularly so since a significant proportion of HNW wealth is held in shares.

Despite the fall, a recent report from Barclays still showed a remarkable tolerance for stocks. Over the next 12 months a surprisingly high figure of Indian HNWs, 34 per cent, are expecting to increase their exposure to the Indian market. It is quite possible that investors are hoping that the turmoil will pass and return to its recent bullish state. The report also found that Indian HNW individuals were natural gamblers with 40 per cent happy to increase their exposure to risk, even in these testing times.

As India opens up the mutual funds market has grown, boosted significantly by non-resident Indian participation. The diaspora is increasingly looking back home for solutions. The market swelled to being worth $140 billion in terms of assets under management. Yet the strength of the market rested significantly on stocks. Mutuals will now have to consider diversifying away.

Real estate is another key asset class. In the culture of status-conscious India, the size of a person’s home is seen as a sure mark of his success. Luxury residential real estate has seen a good few years. The difference in purchasing parity power between the West and India, as well as the quality of life for the affluent classes means that many domestic HNW Indians see little reason to move abroad.

Of the top forty richest Indians listed by Forbes, only three have permanently relocated.  That does not stop them from taking significant holdings elsewhere, however. Candy & Candy, a London based estate agent for top end properties in the capital has spent 2008 targeting Indian clientele. Astons Road in West London, a popular street with NRIs and second-generation UK Indians, can boast an average house price of £1.8 million.

But it is residential properties in India itself have seen some of the greatest gains. Locations such as the plush Lutyens Bungalow Zone in central Delhi house the elite. In 2006, the steel magnate Sanjay Singhal bought a bungalow from the Dutch Government for $17 million. Commercial and office property also saw a significant rise with Mumbai becoming one of the top four of the world’s most expensive office markets.

Indians, who contribute 10 to 15 per cent of investment in Dubai, have also been keen to move into the Gulf property market. In 2002, the UAE government’s lifting of restrictions on ex-pat ownership on property lured the Indian wealthy. Dubai, with a strong Indian diaspora and located only two-and-a-half hours from Mumbai, had natural advantages. 

Yet like stocks, both domestic and foreign real estates markets are currently undergoing serious corrections. The inter-linkage of India to the globe has meant that it is increasingly sensitive to external shocks.

Despite the financial bloodletting of the last year, analysts are looking to a bright future. Privatisation remains an ongoing process and will continue to generate lucrative opportunities for industrialists. The stock market is being touted to quickly recover. There may even be lessons to be learnt. Next time around, stock market fluctuations may well be less volatile.

Barclays Wealth  predicts that the Indian boom will continue and reckon that average Indian household wealth will enter into the top ten of the world by 2017. As always in India, the affluent will be the key beneficiaries of any recovery. In a decade, Barclays Wealth estimates there will be 411,000 Indian households with over $1 million. Wealth managers would do well to keep their eyes open.