India’s millennial and Gen Z heirs are redefining family wealth. Startups are their bets
This report is from this week’s CNBC ‘Inside India’ newsletter, bringing you timely and insightful news and market commentary on the emerging powerhouse. Subscribe here.
The big story
Rajat Mehta, scion of the Mumbai-based Mehta Group, left the listing ceremony of Billionbrains Garage Ventures or Groww on Wednesday feeling vindicated.
The company he backed in 2016 as an initial investor, valued at about $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 in.”
Coming from an entrepreneurial family whose fortune was based on consulting, wealth management and brokerage services, the Mehtas traditionally preferred the comfort of listed companies.
But it was the younger Mehta who pushed the family to invest in unlisted assets and startups when he joined the company in 2013.
“The first startup I invested in went bankrupt in three months,” he recalls. “But I learned from it and continued to invest.” He has now invested in 35 startups, some of which are valued at more than $1 billion and are in the process of listing.
DELHI, INDIA – DECEMBER 2: Residential area of Delhi, 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 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 published in June this year.
Between 2018 and 2024, the number of family offices in India increased by more than 500%, from 45 to more than 300, the report said, citing a separate study. Another measure of wealth growth — the number of ultra-high net worth individuals, or families with assets greater than $30 million — also increased to about 13,000 during the same period.
The actual number of family offices in India could be five to ten times higher, according to several wealth managers I interviewed for this newsletter.
The next investors
The next generation of these wealthy families is generally well educated, often with international degrees, and may be reluctant to continue the traditional family business or remain skeptical about its growth prospects, Vikrant Agarwal, managing partner of Delhi-based Proxima Capital Services, told me.
Many old and wealthy families, especially those in small-town India, still hold much of their wealth in the form of physical assets like land and gold. Once these physical assets are converted into financial assets, the number of family offices in India will increase, said Shailesh Balachandran, founder of TriGen Wealth.
India’s “new rich” are emerging from startup employees taking advantage of stock options, returning non-resident Indians bringing back wealth, and a booming stock market. On the old money side, baby boomers are transferring greater reserves of wealth to the next generation.
This wealth transfer also accelerates the shift from physical assets to financial assets, which are easier to distribute, said Balachandran, whose company caters to family offices in cities like Erode, Salem, Coimbatore, Bangalore and Kochi.
The next generation is not only focused on preserving wealth, but also creating it through high-risk investments that generate alpha, experts told me.
A young family office heir, who made money in the textile sector, wants to explore high-risk investments in the startup sector, even though his father 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 Bangalore-based Inflexor Ventures are taking advantage of this shift. The company plans to raise $150 million for its third fund targeting startups in the areas of 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 at over $1 billion – many family offices have realized the benefits of investing in these companies, Gunturu said. He added that some family offices are now investing directly.
“NOW, Family offices invest directly in startups adjacent to their businesses. A good example of this is NoPo, an investment we made as a venture capital firm that was suggested to us by one of the family offices,” Gunturu said, referring to a startup manufacturing carbon nanotubes, which are used in various industries ranging from semiconductors to electric vehicle batteries and medical devices.
Millennials and Gen Z heirs also view startup investing as a new line of business, especially if the family business doesn’t align with their interests.
When Indian fast 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 can generate annual returns of 15%, but investments in startups, he noted, offer the possibility of much greater gains.
“There is a belief that young people think that out of 10 startups, one will emerge and become significantly large, like a Zomato” said Balachandran, adding that some traditional listed companies took two decades to reach a market capitalization of billions of Indian rupees.
“Zomato achieved this within a few months of listing.”
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Praveen Jagwani, CEO of UTI International, said India and the United States had reached key concessions, paving the way for a trade deal.
Ramesh Swaminathan, executive director and chief financial officer of Lupine, said the Indian weight loss drugs market could reach $1 billion.
Duvvuri Subbarao, 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 US tariffs on growth.
Need to know
Inflation in India slows more than expected in October. The headline inflation figure was 0.25%, below estimates for a 0.48% rise and down more than the 1.54% recorded in September.
Trump said tariffs on India could be reduced. He made the comments on Monday during the inauguration ceremony of Sergio Gor, the US ambassador to India.
Auto sales in India have just had an explosive month. Total retail sales across all vehicle segments rose 40.5% from a year earlier, underscoring a strong rebound in domestic consumption that could offset the impact of slowing exports to the United States.
Quote of the week
If [India’s] If exports to the United States are affected, it will have a disproportionate impact on employment. This will create or increase inequalities between people and regions. Another problem that Trump’s tariffs could create is that of China dumping these products into other markets where India competes with it. India will compete in these sectors.
— Duvvuri Subbarao, former RBI governor
On the markets
THE Clever 50 The index is up 1.57% so far this week and is expected to break a two-week decline. The index is up 9.87% year to date.
The benchmark 10-year Indian government bond yield rose slightly to 6.5135%, almost unchanged from last week.
-Nur Hikmah Md Ali
Future
November 14: Wholesale inflation for October, Capillary Technologies IPO opens
November 15: commercial data for October
November 17: unemployment rate for the month of October
Every weekday, CNBC’s ‘Inside India’ news show brings you news and market commentary on emerging companies and the people behind them. Stream the show live on YouTube and check out the highlights here.
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