This report is from this week’s CNBC Inside India newsletter, delivering timely and insightful news and market commentary on emerging powers. Subscribe here.
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Rajat Mehta, the heir of the Mumbai-based Mehta Group, left the listing ceremony for BillionBrains Garage Ventures (also known as Grow) on Wednesday feeling vindicated.
The company, which he backed as an early-stage investor in 2016, was valued at about $1.3 million and went public on the National Stock Exchange for $8.6 billion.
The 36-year-old felt proud when his father Rakesh Mehta told him, “Let’s find Grow our next investment.”
The Mehtas come from a family of businessmen who made their fortunes in advisory, asset management and brokerage services, and traditionally favored the comforts of publicly traded companies.
But when he joined the business in 2013, it was the younger Mehta who pushed the family towards investing in private assets and start-ups.
“The first startup I invested in went bankrupt within three months,” he recalled. “But I learned from it and kept investing.” He has now invested in 35 startups, some of which have valuations of more than $1 billion and are preparing to go public.
DELHI, INDIA – DECEMBER 2: Residential area in Delhi, the capital city of India on December 2, 2018.
Frederic Soltan | Corbis News | Getty Images
Millennials are part of a broader shift among India’s wealthy families investing in startups.
India is in the midst of an unprecedented intergenerational wealth transfer, with an estimated $1.5 trillion of wealth expected to be transferred over the next 10 years, according to a report released by Julius Baer and EY in June this year.
Citing another study, the report said that between 2018 and 2024, the number of family offices in India increased by more than 500% from 45 to over 300. The number of ultra-high-net-worth individuals, or families with assets of more than $30 million, another indicator of rising wealth, also rose to about 13,000 over the same period.
According to multiple asset managers I interviewed for this newsletter, the actual number of family offices in India could be five to 10 times higher.
Next investors
Vikrant Agarwal, managing partner at Delhi-based Proxima Capital Services, said the next generation of these wealthy families are typically well-educated, often with international degrees, and may be reluctant to pursue traditional family businesses or unsure of their growth prospects.
Many of the older, wealthier families, especially those in India’s smaller cities, still hold much of their wealth in physical assets such as land and gold. Shailesh Balachandran, founder of Trigen Wealth, said the number of family offices in India will increase as these physical assets are converted into financial assets.
India’s “new rich” are emerging as employees of start-ups cash in on stock options, non-resident Indians reclaim their wealth and the stock market is booming. On the old money side, baby boomers are transferring greater wealth to the next generation.
This wealth transfer is also accelerating the shift from physical assets to easily distributed financial assets, Balachandran said. His firm caters to family offices in cities such as Erode, Salem, Coimbatore, Bangalore and Kochi.
Experts say the next generation will not only focus on wealth preservation, but will also create more wealth through high-risk investments that generate alpha.
One young heir to a family office making money in the textile business wants to explore high-risk investments in the startup space, even though his father has never invested in anything other than safe assets like real estate and bank deposits, Balachandran said, adding that some clients now want to allocate more than 20% of their portfolio to startups.
Venture capital firms like Bangalore-based Inflexor Ventures are benefiting from this change. The company plans to raise $150 million in its third fund targeting artificial intelligence, robotics, space and automation startups.
Murali Krishna Guntur, partner at Inflexor Ventures, said nearly half of the second fund’s capital came from Indian family offices and expected similar participation this time.
In 2021, a year in which 45 Indian startups became unicorns (valued at over $1 billion), many family offices have woken up to the benefits of investing in these companies, Guntur said. He added that some family offices are now making direct investments.
“Family offices are now investing directly in startups that are adjacent to their businesses. A great example of this is NoPo, an investment we made as VCs after receiving an offer from one of the family offices,” Guntur said, referring to a startup that manufactures carbon nanotubes. Carbon nanotubes are used in a variety of industries, from semiconductors to EV batteries to medical devices.
Millennial and Gen Z heirs also see investing in startups as a new line of business, especially if family businesses don’t align with their interests.
When Indian quick-commerce startup Zept sought fresh funding last year, the Indian family office raised $300 million in just four weeks, said Mehta, one of the investors.
He pointed out that while other investments may yield returns of 15% per year, investing in startups can yield much larger returns.
“It is believed that young people feel that 1 in 10 startups will emerge and become quite large. zomato” Balachandran said, adding that some traditionally listed companies took 20 years to reach market capitalizations of trillions of Indian rupees.
“Zomato achieved that within months of going public.”
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UTI International CEO Praveen Jagwani said India and the US have reached important concessions, paving the way for a trade deal.
Ramesh Swaminathan, Lupine’s executive director and chief financial officer, said India’s weight loss drug market could reach $1 billion.
Dhuvri Subbarao, a former Reserve Bank of India governor and current senior fellow at the Yale Jackson School of International Studies, said India’s domestic market cannot offset the impact of US tariffs on growth.
need to know
India’s inflation slowed more than expected in October. Headline inflation was 0.25%, lower than the expected rise of 0.48% and easier than the 1.54% recorded in September.
President Trump said tariffs on India could be lowered. He made the comment on Monday at the swearing-in ceremony of US Ambassador to India Sergio Gol.
Indian car sales have just had an explosive month. Total retail sales for all automotive segments increased by 40.5% year-on-year, confirming the rapid recovery in domestic consumption that could offset the impact of the slowdown in exports to the United States.
Quote of the week
If (India’s) exports to the US are hit, there will be a disproportionate impact on jobs. It creates or increases inequalities between people and regions. Another problem President Trump’s tariffs could cause is China dumping these products into other markets that compete with India. India will compete in these areas.
— Dvuvri Subbarao, former RBI Governor
at the market
of nifty 50 The index has risen 1.57% so far this week and is on track to break a two-week decline. The index has increased 9.87% since the beginning of the year.
The benchmark 10-year Indian government bond yield rose slightly to 6.5135%, almost unchanged from last week.
— Nur Hikma MD Ali
very soon
November 14: Wholesale inflation in October, Capillary Technologies IPO begins.
November 15: October trade data
November 17: October unemployment rate
Every weekday, CNBC’s Inside India brings you news and market commentary about powerful emerging businesses and the people behind their rise. Live stream the show on YouTube and watch highlights here.
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