New Delhi, Dec 13: The total wealth held by individuals in unlisted equities stands at Rs 7.25-lakh crore, up 23.38% year-on-year (y-o-y), and is projected to touch Rs 17.64-lakh crore by FY22 – a compounded annual growth (CAG) of 19.54%, says Karvy India Wealth Report for 2017.
The stellar rise in unlisted equity space, Karvy says, has been on account of investors, promoters and shareholders reaping huge profits on their investments in start-ups that are encouraging investors to try this offbeat investing idea. That apart, buoyant market conditions and lure of making a good return once the stock lists at the bourses is also another factor that’s driving individuals to invest in unlisted firms.
That said, experts say investors must exercise caution while investing in unlisted companies. While investment in private equity, unlisted shares, and pre-initial public offer (IPO) stocks can yield high returns, investors should check valuations (with listed peers) and evaluate the transactional risks before committing funds. Retail investors and risk averse investors may be better off waiting for listing of IPOs to put their money into such companies, they say.
“I don’t think retail investors should look at such investments. They are more suited to seasoned investors who can tap managements and understand the financials of the company in greater detail. That apart, there is lack of proper regulatory framework. There have been instances of companies vanishing with investor’s money as well,” explains G. Chokkalingam, founder & managing director, Equinomics Research.
Another concern also is that pre-IPO exits are difficult as the market lacks liquidity. And some companies may never get to an IPO, in which case your money will remain locked in the company.
“Without a mechanism for oversight, transactions are also fraught with the risk of fraud, as unscrupulous intermediaries have been known to collect money from investors and then not deliver shares,” the Karvy report cautions.
In FY17, the total wealth grew by 10.91% to Rs 344-lakh crore. By FY22, Karvy expects this to double and touch Rs 639-lakh crore. Individual wealth in India has been calculated by considering only wealth held by individuals and high networth individuals (HNIs) across various asset classes.
While wealth held in financial assets is likely to grow at 14.60% CAGR, physical assets are expected to see an annual growth rate of 11%. The proportion of financial assets in total individual wealth is expected to increase to around 63% by FY22 from 59.30% currently, the reports says.
“India also created higher number of high-net-worth-individuals with a growth rate of 9.5% to 2.19 lakh HNWIs versus the global average of 7.5% and Asia Pacific region’s 7.4%,”” it adds.