Despite the financial crisis rocking India's economy, and the slump last year which wiped out 12 per cent of its billionaire population, India's ultra rich are spending more than ever on luxury.

Despite the financial crisis rocking India's economy, and the slump last year which wiped out 12 per cent of its billionaire population (7 of 55), India's ultra rich are spending more than ever on luxury. 

However when it comes to their investments they are taking a more rational approach and changing their asset allocation to weather the current climate. 

Happily for luxury product makers, most ultra high net worth Indians - those with INR 250 million ($4.5 million) and with a minimum earnings of $630,517 to $720,590, "refuse to acknowledge that there is a downturn when it comes to spending," according to a new survey from Kotak Mahindra in conjunction with CRISIL Research.

The study, entitled Top of The Pyramid 2012 , showed "some interesting trends in various behavioral aspects of the ultra HNIs,” said C. Jayaram, the  joint managing director of Kotak Mahindra Bank. “While, overall, this segment seems to be relatively unaffected by the slowdown in Indian economy, their patterns in spending, investing and savings present huge opportunities.”

The number of Indian ultra-high-net-worth households is estimated to have surged 30 per cent year on year to around 81,000 in 2011, and is expected to triple to around 286,000 over the next five years, the report showed. The net worth of UHNW households is estimated to grow five-fold from an estimated $1.17 trillion in 2011 to $5.73 trillion by 2016, the report said.

Luxury love

The study showed that spending on apparel and accessories had increased the most, followed by vintage spirits/liquor, jewelry and diamonds, luxury watches and household electronics. The vast majority of respondents had not cut their expenditure on luxury goods, from vintage spirits, to precious stones.

Hosting opulent parties for corporate events has become a new area of spending. Some UHNW individuals even reduced their spending on charity in order to maintain their lifestyle.

One respondent was quoted as saying: “We are used to a certain lifestyle and it is not easy to change it, even if there is a slowdown – it is not impacting us so much that we need to change or cut our lifestyle.”

When it comes to luxury cars, exclusivity is a major factor behind luxury car purchases and even established brands are not considered because they lack exclusivity or are seen as mass-market. Demand for cars that project a youthful image is also growing steadily. Top luxury cars from Japan are preferred for everyday use, as they are considered most suitable for India's variable roads. SUVs/crossovers remain the preferred car among the ultra rich.

Change of attitude

When it comes to their investments, India's elite are more rational. The report showed that the country's wealthiest individuals have changed their investment behavior significantly within a year. Investment in debt has risen from 20 per cent of a portfolio in 2010, to 29 per cent last year. Yields have hardened in India's bond market,making it attractive to investors. The yield on the 10-year G-sec was 8.53 per cent in March 2012, compared with 7.98 per cent a year ago. Many also found fixed deposits attractive. 

Meanwhile asset allocation to alternative assets dropped, from 9 per cent in 2010 to 7 per cent in 2011.  Many pulled out of real estate over concerns of a property bubble last year. Allocation to this asset fell from 37 per cent to 30 per cent. Equities allocation stayed the same. 

“The fact that so many UHNW individuals said that their spending habits have not changed due to the slowdown is an indication that they do not expect the slowdown to continue for long,” said Mukesh Agarwal, the president of CRISIL Research. “However, it would be interesting to see whether the caution that has crept into their investments will spill over into their spending if the economic crisis persists longer than expected.”