Shades of money

Despite the relatively sombre tone acquired by the market a few years ago, the prospect of art as a lucrative investment option is still bright—provided one plays by the rules of the game

NOT TOO long ago, Nude, Green Leaves and Bust—a 1932 painting by Spanish artist Pablo Picasso—was sold for a record $106 million, one of the highest prices ever paid for an artwork, in 2010. The same year, international auction house Christie’s sold Indian artist SH Raza’s painting, Saurashtra, for $3.5 million. Although the above figures may attract awe and disbelief, especially at the thought of art being a rich man’s overt indulgence, the fact of the matter is that a number of options have come to the fore over the past few years, especially from emerging artists, that has made investing in the niche medium even by the ‘common man’ a lucrative proposition.

Just picture the mid-1990s: a typical MF Husain could be bought for R1 lakh. Today, any artwork of the master painter will cost upwards of R50 lakh. It is a similar story with other Indian painters such as Raza and Anjolie Ela Menon. While one definitely can’t undermine the current conditions of a country, art will always have that extra edge, which goes beyond the sheer economics, say industry observers.

The good news is that besides buying art for multiple reasons ranging from passion and inspiration, Indian art enthusiasts have started combining their aesthetic sense with financial intuition to broadbase the market and deepen it to provide an alternative investment opportunity that diversifies their financial portfolio. “As an alternative asset allocation strategy, investment in art is growing to become a sunrise investment option in the financial strategy of high net-worth individuals (HNIs). It is also considered to be an effective hedge against inflation with defensive characteristics during weak economic periods,” says Rana Kapoor, MD and CEO, Yes Bank.

The bank was the presenting partner for the recently concluded India Art Fair, which entered into its seventh edition this year. “Our association with India Art Fair is our endeavour through our newly launched ‘Yes Culture’ initiative to further enhance India’s stature in the global art landscape, strengthen the vibrant socio-cultural fabric of our nation and celebrate contemporary India’s rich culture and heritage on a global scale,” explains Kapoor.

This year, India Art Fair witnessed activity not just from the capital city, but also from tier-II and tier-III cities such as Ahmedabad, Chandigarh and Jaipur. Quite a number of sales were also made by offshore buyers, including Qatar, Saudi Arabia, Pakistan, New Zealand and Australia. “Sales were up by 25% this year, and many of the galleries commented on the fact that they were transacting with both new and younger clientele, which is encouraging for the market in India,” says Neha Kirpal, founding director, India Art Fair. “In addition to individuals, buying of artworks has seen heightened interest from the corporate sector as well and institutions, who have developed significant corporate collections,” adds Kapoor of Yes Bank.

The Indian art market

In order to consider art as an investment option, it is imperative to understand the country’s art market first. In India, paintings comprise 99% of the art market. There are other forms of art, too, such as sculptures and installations, but they are mostly bought by collectors and museums. Space, among various reasons, is a constraint for these forms of art.

In paintings, the market can be categorised into phases. The first category would be the old masters, such as NS Bendre and Jamini Roy, who emerged before independence. The second includes artists like Husain, Raza and FN Souza—some of the votaries of the ‘modern’ era. Then there are artists from the 1990s, who experimented with new forms of art. Artists such as Subodh Gupta and Jitish Kallat fall in this category of ‘contemporary art’.

The formalised art market in India is only about 15 years old and expanding, but is small in comparison to some of our global peers such as China. China’s GDP is about four times as large as India’s, but its art market is over 60 times as large. “Based on these comparisons, the Indian market appears undervalued and hence, in the long term, should only grow,” says Dinesh Vazirani, co-founder and CEO of auction house Saffronart.

Prices of contemporary and modern Indian art started soaring around a decade ago, setting the industry wheels in motion. However, in 2008, the financial downturn hit art markets worldwide, including India, during which prices of Indian art fell by more than half. But industry observers believe all this is changing now. “After a prolonged slump, over the past 18 months or so, the Indian art market, particularly modern art, has grown strongly with renewed interest from collectors. It is heartening to see that this phase of growth is driven by genuine collectors acquiring for the long term rather than ‘hot money’, which means we are in a more sustainable phase of growth,” explains Vazirani of Saffronart.

Kapoor of Yes Bank adds: “During the global financial meltdown, the works of most artists saw a steep fall in prices, but leaders of yesteryear remained on top. In fact, after the recession, qualitative work is more in demand, that, too, of renowned artists.”

Kishore Singh, head, exhibition and publication, Delhi Art Gallery, explains further: “I can’t speak for real estate, mutual funds or gold—all of which, for that matter, have seen reductions in profit—but art has an in-built strength that no other asset class has. For instance, we know the dancing figure of Mohenjodaro, but nothing of its history or economy. Around the world, civilisations are recounted by their art and architecture.”

The art of buying

It’s extremely important that one invests in works of art, which have the potential to inspire the buyer for a lifetime. Investment in art should always be long-term, feels Kapoor of Yes Bank. “I personally feel that art should hold no barriers of socio-economic background, for it’s a form of human expression and diverse talent, which can only emerge in an environment that nurtures design thinking and innovation,” he explains, adding: “It is extremely important for an investor to obtain independent and objective advice while making an investment in any asset class, and the same holds true for investing in high-value works of art as well.”

The best advice for buying art is to buy what you love, and what you would be happy to hang on your wall, offers Kirpal of India Art Fair. “Get a sense of what is out in the market, attend talks and forums, meet artists and gallerists, and make as informed a decision as you can. If you look at the global contemporary art market over the past few decades, there have been many examples of phenomenal returns. But equally, as we are only too aware, the market can crash—so nothing is guaranteed. The pleasure of investing in art comes in enjoying and living with that investment as opposed to the comparatively joyless process of investing in stocks and shares.”

A word of caution, though, from Singh, head, exhibition and publication, Delhi Art Gallery: “Art can definitely be taken as an investment for customers who wish to diversify their portfolio, but where are the knowledgeable people to do this? We need to understand that art as an asset class needs professionals who understand it and chart its trajectories independently. In the past, the returns were abnormally high, but with a correction in the market, investors can look for steady gains,” he says.

Risk management

Investments are always risky, art included. So it is important to differentiate between collectors and investors. The former buy as a passion, the latter dispassionately. Unfortunately, even art investors need to—but rarely do—educate themselves. “To leverage art, investors need to go about it rationally, methodically and after studying trends, as well as lacunae in the market. This means you collect not widely and generally, but narrowly and with a focus. That way, you build an investment portfolio that has a market value for its rarity, viability and focused strength,” offers Singh of Delhi Art Gallery. “Whether you buy privately, from galleries or auctions, it must fill in gaps in the portfolio and strengthen it, and obviously, buying at low value makes sense. Investors, particularly, should not buy from unidentified sources or fly-by-night operators because accountability is very important. Provenance, too, needs to be thoroughly studied,” he adds.

Buying art requires specialised knowledge that is not always accessible to everyone, and it is also an illiquid asset. “Also, there are subjective intangibles such as aesthetic appeal and the importance placed by experts on particular periods for that artist, which contribute to its value. Hence, it requires a level of personal interest, as well as research and advice, without which the risks go up,” says Vazirani of Saffronart.

Investing in art does have some inherent challenges—valuation of the artwork and availability of authentic information being primary hurdles. Given the unique nature of art pieces, available information is hard to come by and valuation of artworks is subjective and based on no scientific method. But it need not be high-risk, says Kirpal of India Art Fair. “It is easily possible to start with more modest investments. And so long as you feel a strong affinity for the work you buy, you will never lose. While it could potentially be more profitable to buy direct from the artist, it is also important to support the infrastructure that holds up the industry. It can also be far more rewarding to establish positive relations with the galleries and auction houses for future investments,” she says.

As per Vazirani of Saffronart, both auction houses and galleries have a role to play. Galleries mainly, though not exclusively, offer works in the primary market—that is, new works sourced directly from emerging and established artists, he says. “Auction houses are in the secondary, resale market, and deal only in works from established artists,” he adds.

Also, many people believe it’s more profitable to buy privately than at auctions and from galleries because of high commissions involved. But Vazirani explains: “It is hard to compare commissions, as auction commissions are published, whereas when purchasing privately, the commission is built into the purchase price. Private sale commissions may be higher or lower than at auctions.”

The sharp appreciation in the value of artworks has made many Asian investors consider it as a speculative investment for short-term financial gains, says Kapoor of Yes Bank. “This mindset is sharply in contrast to that of developed country investors who purchase art more for the experience and pleasure they derive than as a means to showcase new-found status and wealth,” he adds.

While we definitely can’t undermine the economic scenario of a country, art will always have that extra edge, which goes beyond sheer economics, says Kapoor of Yes Bank. “It is more attuned to sentimental value and yes, of course, you always invest from a long-term point of view. As they say, there is no reward without risk,” he explains.

Who is worth how much

Artwork was synonymous with international artists like Leonardo da Vinci, Vincent van Gogh, Pablo Picasso, Rembrandt and Monet, to name a few. It was only in the mid-1990s that Indians started to gain recognition around the world, with artists such as Husain, Raza, FN Souza and Anjolie Ela Menon taking the centre stage. There is a new direction in the works of leading artists such as Subodh Gupta, who uses installations, as well as Jitish Kallat, Jagannath Panda, Atul and Anju Dodiya.

“The history of art is witness to the dynamism of this space and there is always a demand for contemporary work, as well as innovative new-age exhibits,” says Kapoor of Yes Bank. “To buy art as an investment, one should have good knowledge of the artist. One should also refer to professional advice, the medium, the time period, previous buyers, the category, etc. The best investment is to buy what fancies your imagination regardless of its value; you still have a work of art. Any investment can fluctuate, and a lot of the possible upside can only be realised after many years of owning and enjoying the artwork,” he adds.

Old masters and moderns have shown the most resilience, offers Singh of Delhi Art Gallery. “The contemporary market suffered the most and its pick-up continues to be a huge challenge,” he adds. “I would say, firstly, don’t buy with investment returns as the main driver. Look at past sale prices from the artist you are evaluating by going on auction sites. Understand the trajectory of the artist’s career, where it came from, and where it might be headed. These factors are more important in ensuring you are getting good value for your purchase, rather than focusing on specific areas within the art market. I believe that there is good value to be found in every category of the market today,” adds Vazirani of Saffronart.

As per Kirpal of India Art Fair, modern masters have always traditionally been strong in India. “But we are seeing a slow, but sure, upward trend in the contemporary sector. To buy artworks in this sector now, while it is still emerging, would be a more effective way to increase your chances of a positive return on investment,” she adds.

The bottomline is, art can be one of the most enjoyable ways to invest one’s money in. “So long as you buy for love of the art, and not purely for a calculated risk that may or may not bear fruit, it’s a win-win situation,” says Kirpal. “Most financial instruments have some risk that is built in, as does art. However, if precautions are observed, not only can investing in art be lucrative, it can also be pleasurable,” adds Singh of Delhi Art Gallery.

Drawing conclusions

A few tips to consider while investing in art…

* Am I interested in art? This is one of the most basic questions, but worth considering, as too often beginners enter the market without a passion for the medium and end up buying on a whim—and making a habit of it.

* Am I knowledgeable about art? Before you zero in on an artist and his work, do some research. Try to figure out what he does and what he is known for. You can also check out galleries to see what’s happening; treat them as the marketplace.

* Am I a first-time buyer? Buy art that you like. Art prices rise and fall—if you buy something that you like, you’ll be able to live with it through the lean years.

* What type of art? For anyone who has ever seen modern art, you know that even the word ‘art’ can pose a tricky definition. Also, not all artworks made by famous artists are masterpieces. You can take advice from people in the industry to help recognise a masterpiece.

* Is art a good investment? Both yes and no. The fact of the matter is you can make money in art, but you can’t always count on it. Also, art does not give you any additional income like interest or dividend.

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