Fine Art Can Be A Fine Investment

Posted in Finance Articles, Total Reads: 3055 , Published on 29 November 2011
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A sound investor diversifies its portfolio with the objective of minimizing risk. This approach can be applied to financial and non financial market assets, our concern is with the latter. Non financial assets are less speculative and the foremost among these are gold and art.

 

Art of Investment

The economic malice the world faces today has changed the game play of investment in a big way. The increasing price of gold is an example of that. People have started investing in valuable assets that are ‘real and tangible’. And also moreover assets like art and gold are valuable asset class investment instrument because it has a low correlation with other types of investments and inflation, thus reducing overall risk. A stock can suffer a double digit percentage loss in a day but the art market is much more stable. Record breaking prices have made headlines in recent years by Indian Contemporary Art works in highly publicized auctions by prestigious auction houses. Indian Contemporary art is on the rise attracting collectors and investors not only from India but from all across the globe. This has lead to an unbelievable high increase in value some as much as four folds.  The Indian art industry is considered to be around Rs 250 crores and it is expected to grow at a rate of 35% per annum.

Mei Moses Art Index of the World

New York University’s Stern School of Business Professors Michael Moses and Jiangping Mei have introduces Mei Moses Fine Art Index after compiling data of long term performance of fine art across the world that tracks over 9000 pieces. In 2010 the Mei Moses Index showed a compounded annual return of 10.67%.

ET’s Art Index for India

The Indian Contemporary Art market has outperformed the very best equity mutual fund the stock market and property market in a comparative study. The computed average return of the works of the top 50 artist has delivered an average return twice as much as very best mutual fund and stock market. The table below shows the comparative indices of Indian Contemporary Art and Other Investments.

 

Index 2000

2004

2005

2006

2007

Average CAGR 2000 - 2007

ET Art Index powered by Osian's

130

1256.7

2203.7

2564.7

2295.1

55.53

BSE Sensex – Close

127.7

212.3

302.2

430.0

500.5

23.28

Gold

112

155

161

221

217

10.81

Assumptions

● The ET Art Index powered by Osian's represents 51 key artists of India, which cover 88% of total sale value in public auctions.

● BSE statistics are actual figures as on 31 December for each year

● Gold prices are actual figures as on 31 December for each year

● Values for BSE and Gold were converted to 100 as on 31 December 1997 to facilitate comparison with the ET Art Index.

Graphical representation of Comparative Indices

Graphical Comparison

India Wealth Report 2010

KARVY’s India Wealth Report is the country’s first ever detailed perspective on the growth of India’s wealth, it uncovers the future of Indian wealth and the investments by India’s individuals over the next 3 years.

Global wealth in financial assets with high net worth individuals at the end of December 2009 was US $ 39 trillion. Total wealth in India is estimated to be around Rs 73 Lakh Crore.

The report gives the summary of Allocation of wealth into different avenues, the total GAGR for the next 3 years comes out to be 25.4%. Here is the finding of the report

In Rs Crore

2010-2011

2011-2012

2012-2013

Individual wealth beginning of the year

7307878

9160011

11495116

Return generated on Investment wealth

803032

1036658

1339928

Financial household saving to be invested

1049101

1298448

1339928

Total individual wealth end of the year

9160011

11495116

14440534

Comparison of Global and Indian Individual Wealth according to asset class

Graph

Investing in art is gaining increasing acceptance around the world. With the increasing wealth of an Indian investor which is estimated to be around Rs14440534 Crore by the end of 2013 the investment in alternative asset is likely to grow to 2% of the total investment. The increasing feat of art auction houses over last few years has provided an important secondary market which has resulted in liquidity, promoting art not only as an object of pleasure but also as an inevitable asset.

Top ten result of Indian Contemporary Paintings, Drawings and Book auctions

Artist/Author

Title

Price (Rs.)

Sher-Gil, Amrita

Village Scene

6,90,00,000

Gaitonde, V.S.

Untitled

4,88,75,000

Varma, Raja Ravi

Adaptation of the poem 'Veena nu Mrug'

2,87,50,000

Souza, F.N.

Nude

2,30,00,000

Padamsee, Akbar

Nude in Grey

2,07,00,000

Swaminathan, J.

Mountain & Bird Series

1,72,50,000

Husain, M.F.

Subhe Banaras

1,61,00,000

Souza, F.N.

Couple

1,61,00,000

Ramkumar

Banaras Series

1,61,00,000

Dodiya, Atul

Welcome

97,75,000

 

The launch of many online art auction houses and art funds has fuel this interest and with the whole world acknowledging Indian artists there is a good potential for future capital appreciation over the coming years. Art has also gained greater exposure to public because of good coverage’s by the media houses even educating them on a new investment opportunity.

Risk involved with investment in art

Art is considered an alternative assets and not a primary investment. Though it has many benefits over other instruments like high returns, low correlation, high capital appreciation etc. But there are some risk too attached to it,

  1. Art is not as liquid as stock. You can’t simply push a button and sell a Picasso.
  2. The Transaction costs are as high as 30-40% as brokerage to auction houses.
  3. The valuation cost is high as it requires specialized valuation.

 

In a Nut Shell

With the government started recognizing the need to give new breed of artist a solid platform the colors of the canvas have inspired and encourage talent from all over the country. Today many artists are producing great works which is applauded globally. The uniqueness of Indian art still lies in its rich cultural heritage. The art mart in India has gone global in a big way and like other sectors it is an economically a viable proposition for business. Somewhere in the world right now, an Indian painting will be bought or sold at an auction and at an unheard price. The paintbrush is becoming as powerful as the pen to express for many Indians.

This article has been authored by Dhaval Mehta from from NMIMS, Mumbai. These are the personal views of the author



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