Super Rich - Gliding Through Turbulence

By M H Ahssan

The super rich in India have seen significant wealth erosion, but they are still breathing easy.

They call it the ‘sudden loss of wealth syndrome’, the stress and the anxiety that afflicts those who lost a substantial chunk of their wealth rather abruptly when the markets tanked last year. True, most of it was in the US. Estimates of the wealth lost by US households have been put in excess of $10 trillion, or 10 years of India’s current GDP.

The big losses of the very, very wealthy have been the subject of newspaper headlines the world over, and the subject of several comparisons. One common yardstick has been to compare the loss in wealth of Lakshmi N. Mittal of Arcelor Mittal, the UK’s richest man, to all of India Inc.’s investment plans for 2008: his loss was bigger. The losses of India’s own richest people have also been dramatic.

“Historically, wealth has usually lasted three generations, before being destroyed, and families fragment,” says Satya Bansal, managing director (MD) at Barclays Wealth in Mumbai. “For business continuity, preserving wealth, succession planning, transitioning wealth between generations and advising business families on the processes, all become very important.”

The Satyam Computers saga apart, many leveraged business people have pledged significant chunks of the stock they own in their companies. Several of them, who were hocked to the hilt, have since lost the companies too. Vijay Sheth of Great Offshore, who saw his company being acquired by Bharati Shipyard, is a case in point. But those are exceptions, rather than the rule. “Much of this wealth destruction has been largely on paper,” says Pradeep Dokania, MD and head of wealth management at DSP Merrill Lynch in Mumbai. “Most of it was not exactly liquid.” On the other hand, he adds, the continuity of business has not suffered: there have been few, if any, business failures of consequence.

There is another side to the story: wealth continues to be created in the unlisted company space as it always has been — under the radar, and quietly. By one reckoning, there are over 10,000 family-run small and medium enterprises in the country whose revenues exceed Rs 250 crore a year, and whose enterprise value is estimated on a conservative basis to be over Rs 200 crore: that makes for a very long list.

Several profiles that are part of this section are of promoters of unlisted companies; their valuations are based on the price that strategic investors such as private equity firms paid for minority stakes. They also come from a variety of businesses, and most are first-generation entrepreneurs. That is a promising sign for the future.

The loss of wealth has also sensitised the newly rich to the need of managing their wealth, with an eye to planning their own and family’s financial future. So the business of wealth management is a window of opportunity for many. But expectations run high too. “India is an unusual new market,” says Anurag Mehrotra, head of wealth management at Quant Capital. “For wealth management firms, and given the youth of the profession, there are many challenges surrounding the quality of relationship managers.”

The booming stockmarket created the mass affluent — young professionals with substantial pay packets that allowed them to consume more, and take investment bets as well — mostly through trading accounts. For them, the steep fall in markets has been a shocker.

“Banking and broking firms have both suffered, as business has fallen off,” says Suresh Badami, head of wealth management services at ICICI Bank. “Broking firms may consolidate now, but we believe that retail client-targeted wealth management services will penetrate wider and deeper into the next tier cities; it is all about extending the relationship across the activity spectrum.”

Wealth also comes with other risks, if you listen to our billionaires. When we contacted some of the new billionaires that were featured in past editions of our magazine to see how they were faring we met with great reluctance. They also become more cautious about talking about their wealth, and not just because it seemed so ephemeral. They are reluctant to discuss it widely or openly, but many have security-related fears. “Putting ourselves in the public eye attracts all kinds of unwanted attention, and many of us have children too,” says one billionaire who does not wish to be identified. Others also referred to possible extortion risks as a reason for shunning the limelight.

Today, the markets have bounced back, so things look better than they might actually be. Coincidentally, on the two dates chosen for comparison — 31 March 2008 and 29 May 2009 — the leading market indices were approximately at the same levels. Despite that, there has been an approximately 35 per cent loss in wealth for our billionaires. They have seen both syndromes: the sudden wealth syndrome, and the sudden loss of wealth syndromes. Perhaps they will now be a little wiser with their wealth.