Thursday, August 7, 2008
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
Thursday, February 14, 2008
India vs. China :: Where does India stand in this battle?
In the late 1970s the communist government in China realised that the State Managed Enterprises, which were dominant in all sectors, were facing a severe shortage of funds. This prompted the economic reforms in China in the 1980's. The government had no intention of giving away its ownership in these sectors. Hence even though the public sector companies were not performing well, private ownership was fiercely opposed. The reforms enabled the inflow of foreign investment in China in the form of FDI and FII. This brought in the much needed capital in the country and China made sure that the capital was invested in the SMEs to sustain their growth. It gave many incentives to the foreign investors and lured them to making huge investments in China. Foreign enterprises were allowed to set up their manufacturing plants in China thus providing employment opportunities to the citizens. These reforms have ensured a high growth rate for China. The foreign investors have confidence in the economy and also in the governments resolve in continuing with the reforms.
In India the government was not against capitalism but against the flaws of capitalism. The inflow of the foreign money was opposed not to protect its public sector companies but to protect the small scale Indian industries that provided occupation to many Indians. The government never tried to take control of all the sectors and private companies always found a way to work in sectors where the PSU's had no reach. The economic reforms were introduced in India in the year 1991 due to the lack of funds with the government. Unlike the reforms in China, the Indian government reduced its control on PSUs to just three sectors (Defense, Nuclear power and Railways) and encouraged private ownership in all the other sectors. It relinquished the price control to the open markets and regulated the capital markets to ensure transparency in the use of capital. It reduced bureaucratic procedures and made life easy for business. But it did not open the flood gates for FDI as China did. The FDI and FII were allowed to invest in the country but in limited capacity.
Due to these policies the home grown entrepreneurs and industries were encouraged and the government went a step further by indirectly providing limited protection against the foreign competition. This allowed the Indian industries in high technology sectors (Infosys and Biocon) to flourish and compete against their counterparts in Europe and America. As against this, the Chinese government continued to be liberal with the foreign private ownership while at the same time creating legal and regulatory barriers for private ownership at home so that they could not pose a challenge to the SOE. It used the foreign capital to obtain economies of scale in manufacturing this making it the world’s factory.
Can India surpass China? India has a long way to go before it can really challenge China. Problems like excessive bureaucracy and slow implementation of policies need to be solved by making the political class more responsible. India has many problems other than economic growth like ethnic and religious tensions, a dispute with Pakistan over Kashmir, its internal political instability, etc. There are few incentives for FDI and FII and the poor labor policies, infrastructure and slow judiciary are a concern for the investors. The manufacturing sector and agriculture need a boost so that the long term growth of the country can be ensured. China has its own problems like the control of the provincial and local governments over vast majority of capital-hungry enterprises which creates an unsolvable collusion between regulators and the state's ownership interests. China doesn’t have an independent judiciary. Also the banking sector in china is extremely week as the banks are technically insolvable. This has led to a lack of home capital and excessive dependence on FDI.
The capital markets in India have flourished making it possible for the Indian firms with solid growth and good prospects to raise money as and when needed. The Indian firms have only a small percentage of funding coming from the operating profits while the rest comes from the markets. The banks in India have not done the same mistakes as the Chinese banks and so the banking system is robust. However it needs to have more depth to satiate the need of the growing industry demands. With the government making regulations less stringent for the foreign investors and the NRI to invest in India and with steady economic reforms and the much needed political will, India seems poised to surpass China economically and politically to become the next superpower.
-Mayank
In India the government was not against capitalism but against the flaws of capitalism. The inflow of the foreign money was opposed not to protect its public sector companies but to protect the small scale Indian industries that provided occupation to many Indians. The government never tried to take control of all the sectors and private companies always found a way to work in sectors where the PSU's had no reach. The economic reforms were introduced in India in the year 1991 due to the lack of funds with the government. Unlike the reforms in China, the Indian government reduced its control on PSUs to just three sectors (Defense, Nuclear power and Railways) and encouraged private ownership in all the other sectors. It relinquished the price control to the open markets and regulated the capital markets to ensure transparency in the use of capital. It reduced bureaucratic procedures and made life easy for business. But it did not open the flood gates for FDI as China did. The FDI and FII were allowed to invest in the country but in limited capacity.
Due to these policies the home grown entrepreneurs and industries were encouraged and the government went a step further by indirectly providing limited protection against the foreign competition. This allowed the Indian industries in high technology sectors (Infosys and Biocon) to flourish and compete against their counterparts in Europe and America. As against this, the Chinese government continued to be liberal with the foreign private ownership while at the same time creating legal and regulatory barriers for private ownership at home so that they could not pose a challenge to the SOE. It used the foreign capital to obtain economies of scale in manufacturing this making it the world’s factory.
Can India surpass China? India has a long way to go before it can really challenge China. Problems like excessive bureaucracy and slow implementation of policies need to be solved by making the political class more responsible. India has many problems other than economic growth like ethnic and religious tensions, a dispute with Pakistan over Kashmir, its internal political instability, etc. There are few incentives for FDI and FII and the poor labor policies, infrastructure and slow judiciary are a concern for the investors. The manufacturing sector and agriculture need a boost so that the long term growth of the country can be ensured. China has its own problems like the control of the provincial and local governments over vast majority of capital-hungry enterprises which creates an unsolvable collusion between regulators and the state's ownership interests. China doesn’t have an independent judiciary. Also the banking sector in china is extremely week as the banks are technically insolvable. This has led to a lack of home capital and excessive dependence on FDI.
The capital markets in India have flourished making it possible for the Indian firms with solid growth and good prospects to raise money as and when needed. The Indian firms have only a small percentage of funding coming from the operating profits while the rest comes from the markets. The banks in India have not done the same mistakes as the Chinese banks and so the banking system is robust. However it needs to have more depth to satiate the need of the growing industry demands. With the government making regulations less stringent for the foreign investors and the NRI to invest in India and with steady economic reforms and the much needed political will, India seems poised to surpass China economically and politically to become the next superpower.
-Mayank
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