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’Portfolio Exposure Should Tap Direct Equity In Startups’

Author: Kumar Shankar Roy/Wednesday, February 12, 2020/Categories: The Finapolis Conversation

’Portfolio Exposure Should Tap Direct Equity In Startups’

Advising wealthy investors is catching up with a good pace in India. India's list of millionaires more than doubled in the last 10 years. Naturally, the need for advice grows. Fintrust Advisors LLP is a boutique wealth advisory firm providing personalized research-driven expert advisory services. In this week's Finapolis Conversation, Kumar Shankar Roy talks to Anurag Jhanwar, Co-founder and Partner, Fintrust Advisors LLP. Anurag, who has close to 20 years of experience, is actively working with multiple corporate and start-ups across sectors and consults in varied functions of business strategy, operations, marketing, branding, go-to market, financial structuring, and fund raising amongst others. In this interview done after Union Budget, he talks on investments in start-ups, financial asset classes, the housing market, DDT abolishment and its impact on rich investors. Read on to know more.

Given the startup culture in India, what is your view on Seed/VC/PE investment in the start-up space?

India has been cementing its position as one of the most preferred global start-up ecosystems, bagging third position after China and US in the list of total unicorns in a country, according to Hurun Global Unicorn List 2019. Over 40,000 start-ups setting their base in the last six years, itself is a testimony to the increasing entrepreneurship spirit in the country.
 
The start-up ecosystem requires a balanced mix of risk capital right from helping the initial idea, finding its feet to help in growth capital and market share and hence a mix of Angel, Seed, VC, PE investment is required with both horizontal and vertical presence. The growth trajectory of most of the companies is also not limited to the Indian Diaspora only, but it's much wider- in most cases all countries; thus providing a regular growth trigger. These factors make the proposition very exciting for investment capital. The disproportionate return from a few of these companies more than compensates for any potential risk of failures out of the portfolio.

Do you think, measures announced like ESOPS tax deferment, turnover limit extension, for start-ups in the recent budget will propel the growth for the start-ups?
The budget has given direction towards promoting entrepreneurship and has given few benefits towards turnover limits, ESOPs, audit framework, but I believe these are more focused on specific aspects of startup businesses. The overall growth for start-ups, however, would require an inclusive approach which takes care of an end to end journey from the availability of risk capital to wade through the initial difficult years, to GST and TDS compliances, to related cash flow drag, and quality of talent. One has to look at both revenue and cost aspects and ask questions on what all can be done to make each of these viable and work towards creating an enabling environment, which will give us more unicorns in the country.

Given, the negative sentiments in the market both domestically and globally, which asset class you are most bullish on?
Given that India is fundamentally a strong economy, we believe that equity is best suited for a long-term play. The same has to be allocated through proper research on themes, cycles, and a proven track record of fund managers. Some portion of the portfolio should also be allocated to direct equity in the startups, where a lot of potential exists, which can generate alpha for the portfolio.

What is your view on the new tax regime, removal of 80C deductions, and its impact on housing demand?
Any benefit being taken out will pinch the pocket of the taxpayer and will have repercussions on the purchasing power. However, the difference per se is not expected to be that high to hit the housing demand drastically. Additionally, the housing demand is more related to the overall positive sentiment including new job creation, job security/business stability and as such, we need to revive the private investment and consumption to see an uptick sustainably.

What is your view on DDT abolishment and its impact on HNIs/UHNIs/Family office setup?
From a foreign investors' perspective, DDT was a surrogate tax, which restricted flows into Indian markets. Now, without DDT, it will help boost market sentiment and make Indian equities more attractive. However, from a domestic investors’ perspective, one should be aware that the majority of promoters, HNIs and UHNIs fall in the highest tax slab. This increases the tax outgo substantially because they could end up paying 39 per cent to 43 per cent tax on dividends as it will be levied as per the tax slab of investors. The Investment strategies based on dividend income may become less attractive due to higher tax outgo and also one has to see whether the companies will raise dividends proportionate to the tax cuts.

What is your view on current multi-family space in India and its future?
India has around 50-60 Single-family offices currently and it is expected to grow to over 1,000 in the next five years. As overall wealth grows in the country, there will be an emergence of more HNIs and UHNIs – currently pegged at around 1.75 lakhs, which require specialized advisory services across asset classes something which can be delivered seamlessly through Multi-client family offices. Since the concept is yet at the initial stages, there is an expectation of huge growth in this segment.

What is the asset under advisory size for Fintrust Advisors, where do you see the business in the next 2 years?
Fintrust currently has over Rs 2,000 crore of Asset under Advisory, which we expect to increase to over Rs 5,000 crore in the next two years.

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