Kotak Wealth Management and CRISIL Research

Ultra HNIs Cautious With Prolonged 

Economic Slowdown, 

But Maintain Their Lifestyle

Key Findings:

 Number of Ultra High Net Worth Households(ultra HNHs) rises to 100,900 in 2012-13;to more than triple in the next 5 years to 329,000

 Total net worth of Indian ultra HNHs to grow 4.5 times to Rs.380 trillion by 2017-18

 In 2012-13, non-metros accounted for 46 per cent of ultra HNHs in India

 Ultra high net worth individuals (Ultra HNIs) have got cautious in spending on discretionary items in the current economic slowdown. They continue to spend on non-discretionary items to maintain lifestyle; caution continues in investments

 Location of residences a key factor in purchase of a luxury home

 Ultra HNIs prefer renowned architect / developer while buying a home

 Personal pool and mini theatre are the most preferred amenities in a luxury home

Kotak Wealth Management and CRISIL Research launched the third edition of the „Top of the Pyramid‟ report in Mumbai . The report reveals the emerging trends about spending, investing and income patterns of India‟s Ultra High Networth Households (ultra HNHs) amidst prolonged economic uncertainty. In this edition, the report‟s special focus areas are: first, what a „luxury home‟ means to an Ultra High Networth Individual (ultra HNI) and their purchase pattern; and second, the understanding and importance of estate planning.

The report states that the number of Indian ultra HNHs is estimated to have grown to around 100,900 in 2012-13, and is expected to triple to around 329,000 over the next five years. Consequently, the net worth of ultra HNHs is estimated to surge 4.5 times from an estimated Rs.86 trillion (86,000 billion) in 2012-13, to Rs.380 trillion (380,000 billion) by 2017-18. What is interesting is that close to 46 per cent reside in non-metros (the report defines an ultra HNH as one with a minimum average net worth of Rs.250 million accumulated over the past 10 years).

Unlike last year, a large percentage of respondents believe that there is a downturn and an early recovery is not in sight, indicating a level of pessimism about the economy that was not seen last year. This has caused a change in the ultra HNIs‟ perception on spending: nearly a third of our respondents indicated that their spending has been adversely impacted. Although they continue to spend to maintain their lifestyle—thereby ensuring that their non-discretionary spend in the near term won‟t be curtailed—they are now exercising greater caution regarding discretionary purchases.

In keeping with their flamboyant lifestyle, they are seen spending lavishly on luxury homes, food, clothing, education, travel and family vacations.

The report further highlights that the choice of location is the predominant factor that drives an ultra HNI to purchase a luxury home. It is a status symbol for the ultra HNI and he goes to great lengths to ensure exclusivity. So, factors such as brand aspects relating to the architect/developer, architectural

significance, amenities on offer etc.—anything that offers a chance at exclusivity becomes a swing factor in the purchase. 

Interestingly, luxury home purchases by ultra HNIs are not confined to India. Driven by globalisation, comparable valuations overseas and investment considerations, more and more ultra HNIs are purchasing luxury properties abroad in places such as Singapore, London and Dubai.

Mr. C. Jayaram, Joint Managing Director, Kotak Mahindra Bank Limited, said, “The third edition of the Top of the Pyramid report has thrown up some interesting trends in various behavioural aspects of the ultra HNIs. While overall, non-discretionary spends continue to rise, caution has crept into discretionary purchases.”

“Real estate investments have always delivered good returns in India, which is indicated by data through all the three editions of the report. Ultra HNIs continue to be cautious with their investments and wealth preservation is gaining prime importance. The newer generation understands the essence of estate planning, which is still at a nascent stage in the country. The market survey revealed that close to 80% ultra HNIs believe Estate Planning is important, however only about 30% people have a private trust. It is our constant endeavour to offer best in-class products and services to our clients,” adds Mr. Jayaram.

Mr. Mukesh Agarwal, President, CRISIL Research, added, “Compared to last year, there is more pessimism among ultra HNIs this year about an early economic recovery. The caution that appears to be creeping into ultra HNI spending, particularly in discretionary spends should be an added concern. It is the entrepreneurial spirit of the business class, who form a significant share of the ultra HNI population in India, which has driven India‟s high economic growth in the last decade. 

Therefore, the need of the hour is to take further steps to spur an early economic recovery and revive domestic consumption. The unprecedented wealth creation that unfolded in the 1990s after economic liberalisation is a story that needs to be repeated. A rapid increase in the number of ultra HNIs will be a reflection of the success of the long-term India growth story.”

Discipline and capital protection continued to be the line on investments. Allocation to asset classes such as debt continued to be significant and real estate continued to be popular in 2012. Traditionally, investment in real estate is seen as medium risk in India but ultra HNIs are increasingly capitalising on opportunities such as distress sales as part of their short-term investments. In that sense, trends this year were not too dissimilar compared to last year.

The report also highlights that the estate planning business in India is still at a nascent stage but is slowly gaining importance. Many ultra HNIs understand that an efficient estate plan will ensure smooth succession of their estate to their heirs after their demise, protect the heirs against any possible disputes in future and ensure that requirements and needs of dependent and minor beneficiaries are taken care of. But quite a few of them do not yet think that it is a very serious issue. In the years ahead, the reliance on family CAs/lawyers will decrease because the newer generation of ultra HNI is more aware of the nuances of estate planning and the niche products that are being offered by professional wealth managers.

"Top of the Pyramid‟ is based on in-depth interviews with senior personnel at major global luxury brands, wealth managers, estate planners and product dealers, and an extensive market research with ultra HNIs across multiple cities. It is available free of cost, and can be downloaded from the Kotak Wealth Management and CRISIL websites.

About Kotak Mahindra Group

Established in 1985, the Kotak Mahindra group is one of India‟s leading financial services conglomerates. In February 2003, Kotak Mahindra Finance Ltd. (KMFL), the Group‟s flagship company, received a banking license from the Reserve Bank of India (RBI). With this, KMFL became the first non-banking finance company in India to become a bank – Kotak Mahindra Bank Limited.

The consolidated balance sheet of Kotak Mahindra group is over Rs. 1.17 lakh crore and the consolidated net worth of the Group stands at Rs. 17,228 crore (approximately US$ 2.9 billion) as on June 30, 2013. The Group offers a wide range of financial services that encompass every sphere of life. From

commercial banking, to stock broking, mutual funds, life insurance and investment banking, the Group caters to the diverse financial needs of individuals and the corporate sector. 

The Group has a wide distribution network through branches and franchisees across India, and international offices in London, New York, Dubai, Abu Dhabi, Mauritius and Singapore.

For more information, please visit the company‟s website at http://www.kotak.com/

About Kotak Wealth Management

Kotak Wealth Management is one of the leading wealth managers in India, providing solutions to high net worth individuals. With over fourteen years of experience of Kotak Group in wealth management space and the widest range of wealth management solutions, our client base ranges from entrepreneurs to business families, as well as employed professionals. We provide financial advice and manage wealth for 43 per cent of India's top 100 families (as per the Forbes India Rich List - 2012).

Our offering is customised, based on client‟s profile and investment objectives in transaction based or advisory based approach. We offer a whole range of banking solutions and investment options including Family Office Service and Estate Planning Service#.

Kotak Wealth Management is the only Indian Wealth Management firm to feature in the 'Top 25 Private Banks' of the world in the category of 'Best Private Banking Services Overall' by Euromoney Private Banking Survey 2013.

For more information, please visit http://www.wealthmanagement.kotak.com/

Kotak Wealth Management is a part of Kotak Mahindra Bank Ltd.

# Offered by Kotak Mahindra Trusteeship Services Ltd.

About CRISIL Limited

CRISIL is a global analytical company providing ratings, research, and risk and policy advisory services. We are India's leading ratings agency. We are also the foremost provider of high-end research to the world's largest banks and leading corporations.

About CRISIL Research

CRISIL Research is India's largest independent and integrated research house. We provide insights, opinions, and analysis on the Indian economy, industries, capital markets and companies. We are India's most credible provider of economy and industry research. Our industry research covers 70 sectors and is known for its rich insights and perspectives. Our analysis is supported by inputs from our network of more than 4,500 primary sources, including industry experts, industry associations, and trade channels. We play a key role in India's fixed income markets. We are India's largest provider of valuations of fixed income securities, serving the mutual fund, insurance, and banking industries. We are the sole provider of debt and hybrid indices to India's mutual fund and life insurance industries. We pioneered independent equity research in India, and are today India's largest independent equity research house. Our defining trait is the ability to convert information and data into expert judgments and forecasts with complete objectivity. We leverage our deep understanding of the macro economy and our extensive sector coverage to provide unique insights on micro-macro and cross-sector linkages. We deliver our research through an innovative web-based research platform. Our talent pool comprises economists, sector experts, company analysts, and information management specialists.