This report is from this week’s CNBC’s “Inside India” newsletter, which brings you timely, insightful news and market commentary on the emerging powerhouse. Subscribe here.
The big story
Rajat Mehta, scion of Mumbai-based Mehta Group, walked out of the listing ceremony of Billionbrains Garage Ventures or Groww, on Wednesday, feeling vindicated.
The company he backed in 2016 as an early-stage investor, at a valuation of roughly $1.3 million, debuted at $8.6 billion on the National Stock Exchange.
The 36-year-old felt a sense of pride after his father, Rakesh Mehta, told him, “Let’s find the next Groww to invest.”
Coming from a business family whose fortunes were built on advisory, wealth management and brokerage services, the Mehtas traditionally preferred the comfort of listed companies.
But it was the younger Mehta who pushed the family toward investing in unlisted assets and startups when he joined the business in 2013.
“The first startup I invested in went bust within three months,” he recalled. “But I learnt from that and kept on investing.” He has now invested in 35 startups, including some valued at over a billion dollars and are in the process of being listed.
DELHI, INDIA – DECEMBER 2 : Residential area in Delhi, the capital of India on December 2, 2018 in Delhi, India.
Frédéric Soltan | Corbis News | Getty Images
The millennial is part of a broader shift among wealthy Indian families who are investing in startups.
India is on the cusp of an unprecedented intergenerational wealth transfer, with an estimated $1.5 trillion expected to change hands over the next decade, according to a report by Julius Baer and EY in June this year.
Between 2018 and 2024, the number of family offices in India rose more than 500% to over 300 from 45, the report said, citing a separate study. Another measure of rising wealth — the number of ultra-high-net-worth individuals, or families with assets above $30 million — also increased to roughly 13,000 in the same period.
The true number of family offices in India could be five to 10 times higher, according to multiple wealth managers that I interviewed for this newsletter.
The next investors
The next generation of these wealthy families is typically well educated, often with international degrees, and may be reluctant to pursue the traditional family business or remain unconvinced about their growth prospects, Vikrant Agarwal, managing partner of Delhi-based Proxima Capital Services, told me.
Many of the old, affluent families, especially those from smaller cities in India, still hold much of their wealth in physical assets like land and gold. Once those physical assets are converted into financial assets, the number of family offices in India will rise, said Shailesh Balachandran, founder of TriGen Wealth.
India’s “new rich” are emerging from startup employees cashing in on stock options and returning nonresident Indians bringing back wealth, and a booming stock market. On the old money side, baby boomers are transferring larger pools of wealth to the next generation.
This transfer of wealth is also speeding up the shift from physical to financial assets, which are easier to distribute, said Balachandran, whose firm caters to family offices in cities like Erode, Salem, Coimbatore, Bangalore and Kochi.
The next generation is not solely focused on wealth preservation, but also creating more of it through high-risk investments that generate alpha, experts told me.
One young heir of a family office, which has made money in the textile business, wants to explore high-risk investments in the startup space, even though his father has never invested beyond safe-haven assets like real estate and bank deposits, said Balachandran, who added that some clients now want 20% or more of their portfolios allocated to startups.
Venture capital firms like Bengaluru-based Inflexor Ventures are benefiting from the shift. The firm plans to raise $150 million for its third fund targeting startups in artificial intelligence, robotics, space and automation.
Nearly half of the capital in its second fund came from Indian family offices, said Murali Krishna Gunturu, a partner at Inflexor Ventures, who expects similar participation this time.
In 2021, the year when 45 Indian startups became unicorns — valued over $1 billion — many family offices woke up to the benefits of investing in these companies, Gunturu said. He added that some family offices are now investing directly.
“Now, family offices are investing directly into startups adjacent to their businesses. Case in point is NoPo, an investment we made as a VC, which was suggested to us by one of the family offices,” said Gunturu, referring to a startup manufacturing carbon nanotubes, which are used in various industries ranging from semiconductors to EV batteries and medical devices.
Millennials and Gen Z heirs also see startup investing as a new line of business, especially if the family business does not align with their interests.
When Indian quick commerce startup Zepto sought new funding last year, Indian family offices deployed $300 million in just four weeks, said Mehta, who was among the investors.
Other investments may deliver annual returns of 15%, but startup investments, he noted, offer the possibility of far larger gains.
“There is a belief that the youngsters feel that out of 10 startups, one will emerge and become substantially large, like a Zomato,” said Balachandran, adding that some traditional listed companies took two decades to reach multi-trillion-Indian-rupee market capitalizations.
“Zomato achieved that within months of listing.”
Top TV picks on CNBC
Praveen Jagwani, CEO of UTI International, said India and the U.S. have reached key concessions, paving the way for a trade deal.
Ramesh Swaminathan, Executive Director and CFO of Lupin, said India’s weight-loss drug market could reach $1 billion.
Duvvuri Subbarao, the former governor of the Reserve Bank of India and currently a senior fellow at the Yale Jackson School of Global Affairs, said India’s domestic market will not be able to offset the impact of U.S. tariffs on growth.
Need to know
India inflation cools more than expected in October. The headline inflation number was 0.25%, below estimates of a 0.48% rise and easing more than the 1.54% recorded in September.
Trump said tariffs on India may be reduced. He made the comments on Monday during the swearing-in ceremony of Sergio Gor, the U.S. Ambassador to India.
India’s auto sales just had a blowout month. Total retail sales across all vehicle segments were up 40.5% from a year earlier, underscoring a sharp rebound in domestic consumption that could offset the impact of the slowdown in exports to the U.S.
Quote of the week
If [India’s] exports to U.S. are hit, it will create a disproportionate impact on jobs. It will create or increase inequality across people and regions. Another issue Trump’s tariffs might create is China dumping those products to other markets where India competes with it. India will be competed out in those sectors.
— Duvvuri Subbarao, Former RBI Governor
In the markets
The Nifty 50 index has risen 1.57% so far this week, and is set to break a two-week decline. The index has risen 9.87% for the year to date.
The benchmark 10-year Indian government bond yield ticked slightly higher to 6.5135%, nearly unchanged from last week.
— Nur Hikmah Md Ali
Coming up
Nov. 14: Wholesale inflation for October, Capillary Technologies IPO opens
Nov. 15: Trade data for October
Nov. 17: Unemployment rate for October
Each weekday, CNBC’s “Inside India” news show gives you news and market commentary on the emerging powerhouse businesses, and the people behind its rise. Livestream the show on YouTube and catch highlights here.
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