ARTZ INDIA

Portfolio diversification is some thing that we hear all the time from investment gurus. However many investors fail to acknowledge the range of investment avenues available to them. One such option is investing in arts. It may not have been a very feasible option in the Indian context 10 years back but today it is one of the best ways to hedge against the fluctuations that the Indian stock markets are experiencing.

If appropriately picked up, art works have the potential to translate into a decent sum of money. The growth of this sector was 5% to 10% during the early part of the decade, however the NRI proliferation has pumped up the demand and the returns on quality works have been a mindboggling 3000% or more over a long term! Contrary to popular belief, the ongoing bearish phase in the stock market has not impacted the sentiment for art. The ET Art index has only tripped 8% over the past six months, in sharp contrast to equities, which have fallen nearly 40% from their peaks at the start of this year.

The Indian art market has been steadily growing and new records are being made each day in terms of the price of the Indian Artist's works. Many Indian masters now find themselves in the 'million dollar a painting' band and the number of such artists is increasing. Young and budding painters are riding on the euphoria that surrounds the art market today and they are trying to make their mark not by imitating the masters, but by creating novel works that are being appreciated all over the world.

Though the Indian Art market is a very good investment option, there is a long way to go before it completely matures. The biggest hurdle is that art is still an unregulated sector in India and this has deterred the financial institutions and the big investors from betting on arts. Though there are a few Art funds (analogous to Mutual funds in the stock market) floated by big auction houses and art galleries for Indian paintings, SEBI has put a hold on any new offering before an independent regulatory authority is being setup for this sector. Once this happens, there will be many Art funds for the investors to choose from. These funds will invest not only in artists like M F Husain, Tyeb Mehta, F N Souza, etc. who are the blue-chips of the art industry, but also in promising new painters.

Direct investment in art works is also a very realistic way of investing in arts. A safe bet would be to buy these works from art galleries as the galleries generally ensure the quality of the works that are being displayed by them. Though they may charge a premium from anywhere between 10% to 30% of the price of the work, it reduces the risk of investing in a bad(investment wise) piece. However one can increase the profit margin by doing a little research and n fold then buying the paintings directly from the artists. Art industry also provides an option in which investors can gain ten fold growth provided they are willing to take some calculated risks. For this one needs to understand the market trends by continuously interacting with art critics, visiting art galleries, meeting different artists and staying updated on the art market news. Then one can bet on new and not so famous (yet) artists hoping that the artists will make it big in a time span of 5 to 10 years. Also, one can diversify the art portfolio by buying art works of various new artists so that even if one of them goes up the value chain, high returns are a guarantee.

Indian artists are making a mark in the international art markets like London, New York and Hong Kong. Back home, the potential buyers are not only the High Net worth Individuals any more, the rising middle class is also ready to make the plunge. Just like it is true in the context of the stock markets, it will be the early birds that will make the most out of this opportunity.

Mayank