The recently-concluded auction by Enami Chisel art gallery in Kolkata spells trouble for the Indian art market. The auction earned Rs 4.7, crore which was one-third of its orignal estilmate and half the paintings in the auction remained unsold. These included two paintings by Arpita Singh and J Swaminathan, which were expected to attract the highest bids at the auction. Sir Isaac Newton one said, “What goes up must come down,” when referring to his breakthrough in gravity. However, the saying seems to be echoing in the world economy and now, even in uncorrelated markets like art. Last year, art funds were a new phenomena and with its ability to catch investors fancy, India looked ready to make a big presence in the art world. The funds, while having not been as badly hit as mutual funds, the art market on the whole has had a major setback, especially after the drerams it harboured a year ago.

While the recently concluded auctions in India and overseas showed up some shocking results for Indian artists whose paintings failed to attract many bidders, many within the art world still feel positively about the market. Some claim that the financial meltdown has lowered demand, while others urge investors to look at this as an opportunity of sorts. “I may now be able to afford an Indian master like Hussain or Souza, which I could not have dared thought of sometime ago.” exclaimed an art collector in Mumbai. This may well be the case, given the lack of demand the market has generated, with money being held onto as a rare commodity itself. However, there are plety of upcoming artists and undervalued artists whose works are still being purchased, with experts sensing them to be perfectly priced for future growth. In the relatively closed doors of the art funds world, some are disgruntled by the lack of foresight shown by them, while others applaud efforts of the fund that have made the right decisions. The big funds currently operating in India are Osians art fund, Crayon Capital’s art fund, Copal Arts, Yatra and the Indian Fine art fund set up Philip Hoffman himself. These funds had been in the midst of speculation a few months ago, with Sebi wanting them to register and be brought under their purview. However, the details of most of these funds are still very exlusive and difficult to get a hold of, unless you’re an investor with them, leaving an aura of mystique and doubts about them.

The confidence factor

With shaky confidence and low belief being the key destroyers of our investors morale and in turn many markets itself, we seem to have caught ourselves in a continuous circle with no way out. The stock markets are unpredictable and people sense a similar trend might set forth in the art market too.

ArtTactic is an American company, which specialises in understanding and providing insights about the global art market. They set up an Art Market Confidence Indicator in May 2005, and it was the first time anyone had tried to measure the sentiment in the art market. The indicator is modelled on a similar methodology to the CEO Confidence Survey that was launched in 1976 by the Conference Board in the US. Since the company believes that the opinions of a small group of carefully selected ‘art insiders’ (the sample is currently around 160 individuals), being collectors, auction houses, advisors and other art professionals, provide a valuable insight into the future direction of the art market, a survey is conducted amongst them to judge the confidence level a particular art market is indicating. Their findings in India shed some light onto the plight of the Indian art market. The ArtTactic’s India Confidence survey in May 2008 signalled a shift in the sentiment. This happened at the same time in which respondents turned negative on the economy. This negative mood has now hit the Indian art market. The recent confidence survey conducted in September 2008, showed that the overall ArtTactic Indian Art Market Confidence Indicator fell a further 23% from the last reading in May, which has resulted in a combined fall in the Indian Art Market Confidence of 34% since October 2007.

The Indian Art Market Indicator has been hit by a 38% drop in the confidence in the economy, which is a further deterioration from the 54% decrease experienced between October 2007 and May 2008. Hence, the economic component of the indicator has fallen 71% since October last year. This has to be viewed in the light of The Bombay Stock exchange (Sensex) having lost more than 50% of its value between October 2007 and October 2008. With inflation levels close to 12% and weaker industrial production numbers for August 2008, the Indian economy is feeling the gravity of the global crisis – a sentiment that is now starting to find its way into the heated Indian art market.

ArtTactic’s recent survey also shows a significant fall of 36% in the Indian Contemporary Art Market Confidence Indicator, which reached its height in May 2008. The loss in confidence has been largely caused by speculation (73% of respondents saying this is the biggest risk to the contemporary Indian art market), and rapidly rising prices of younger, still unproven contemporary artists, combined with a much weaker and uncertain economic climate.

Artists have little say

We all know that Indian artists, especially some of the contemporary and many of the modern artists, have had a tremendous run of success over the last few years in India and more so internationally. This success had invoked all sorts of positive and negative feelings within the industry, with some feeling that some artists are over-hyped, while others support newer emerging talents in view of the success of those already established. The prices of art being higly based on collectors and investors demand and willingness to pay for particular artists and work, leave artists with little say on the conomics of art. However, the fact remains that they continue to work, paint and produce good pieces, indicating no major inherent flaws wthin the sysytem.

An inventory look at Osians art fund, shows them favouring artists like Gaitonde, Hussain, Padamsee Akbar, Souza and Jogen Choudary, with these artists constituting 11.33%, 9.91%, 8.76%, 7.77% and 5.06% of the overall portfolio respecitvely. Surprisingly, the much acclaimed Subodh Gupta has failed to make an impression within their stock, probably falling into the others category. Another interesting fact is that each artist comes from a different school of art and funds also patronise various schools of art depending on their understanding. Here, once again, Osians annual reports as of July 2008, provides an insight into their school preference, with Progressive Artists Group, A Focus on Abstraction, A Figurative Focus, Contemporary Art and Caluctta Group and Painters accounting for 20.9%, 18%, 10.1%, 9.4% and 8.7% of their corpus invested.

An invesntory analysis of Osians, when looked at via the medium of art bought, also gives an indicator of the preference the fund shows. Canvas accounts for a chunk of the art work, bought at 70.82%, with paper accounting for 24.57%. Sculpture and graphic art while also a part of their inventory, account for only 4.10% and 0.50% respectively.

Phillip Hoffman, who’s raised $25 million for the Indian Fine Art fund overseas, too strongly believes and supports Indian art, correctly sensing that this Rs 1,200-crore market, which is just about 1% of the global art market, is undervalued and has huge potential. Art collector Bijay Anand says, “Hema Upadhyay, Atul Dodiya, Anju Dodiya, TV Santosh at its primary price, MF Hussain due to his universal appeal and Ramkumar are good artists to consider buying now, especially as the prices are right. Also, Raza and Souza are well priced and I would be interested in their work as well.” While reminiscing on the plus sides this financial crisis has gotten to the art world, Ajay Seth, chief advisor of Copal Arts, on the other hand, feels, “Some of the undervalued and reasonable artists, which one should look at today are Veer Munshi, Dahaneshwar Shah and Badri Narayan. The former two being young contemporary artists who fall in the price range of Rs 2-3 lakh and I see tremendous growth potential from them.”

Art funds

Crayon Capital art fund shows its NAV as on September 30, 2008 to be Rs 1400.60/unit, which is an increase of 40.40% since inception. This figure is encouraging in every way, for it clearly shows that while the art world has been affected, art funds still stand tall as an asset class to be counted upon. Osians art fund too showed impressive records as of July 9, 2008 with a NAV of Rs 138.83, which is a 38.83% increase from their inception and this spells good news for the art world. Ajay of Copal arts says, “We are very busy and in the midst of our Rs 150-crore funds launch and expect it to do well. Our track record has been good and we are still getting a lot of repeat customers and almost 25-30 new investors every month. Currently, the paintings we recommend to be bought give returns to the investors of anywhere between 6-60 times the original value, with an average return of 8-10 times at least.” While Yatra and Crayon Capital were unable to disclose their figures, Bijay who has invested and tracks most of the art funds of the country strongly advocated Crayon Capitals art fund as an “excellently managed fund, which is doing very well due to some smart decisions of buying the right artists at the right time and avoiding overvalued and falling artists in their portfolio.”

“There is no asset which is unaffected in today’s financial and psychological meltdown. The key is how slow is the decline for that particular asset, how swiftly will be its revival upon change in the confidence indicator, how minimal is its correlation to normal economic factors, what are the liquidity expectations placed on that asset, and what institutional structures exist to protect the asset from severe irrational decisions. At the same time, how well placed is that asset to stake a larger place in the new financial order, which will emerge once the re-examination is completed months later. With regard to all these parameters, the asset of high quality Indian art is more and more being seen as a credible asset, with many advantages over other assets. Further, though art funds are still privately-placed platforms, the advantages they hold, especially given their stability, closed-ended status and demands for transparency, augurs very well for its future on a global scale, especially those pertaining to the regions of India, Asia and the Arab worlds,” says Neville Tuli, founder-chairman, Osians.

So from the looks of it, art funds themselves, while having been affected somewhat due to the overall state of the economy, have managed to stay on solid ground thanks to the qualities of their asset class. However, in current times, no one advises spending heavily on overvalued art or artists, which who are no longer as highly sought after. Instead, concentrating on newer art, undervalued art and learning more about this market, to try and make the most of these times is a good idea. It is in trying times that artists usually are at their creative best and while speculators have killed the Indian contemporary art market, treating paintings as stocks, the second wind that the art market gets post this, should be far better, with a lot more to look forward to.