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Hung up on value

Kishore Singh  |  New Delhi 

The pundits of art are back to punting for investor-value

Now that the “investors” are back with the art market opening up after a year-long hiatus, it’s important to establish how to invest in art and who an investor really is. Before the markets crashed last year, everyone fancied himself an art connoisseur, and everywhere one went, one heard about the investment value of art. Sensible, educated people one had known for years now wanted to know if the one or two or three paintings they were considering buying for their new farmhouse had investor credibility. Would their Rs 1.5 lakh canvas morph to a value of Rs 1.5 crore in a couple of years?

Yet, these same people would laugh if you asked them whether their Rs 35 lakh Bentley would increase in value, or the Rs 2 lakh would become a collectible, or whether the Rs 1.2 lakh bill they signed at Zest could be regurgitated with interest. There is something not just naïve but puerile when a picture you want to wake up to in the morning in your bedroom, or want as a conversation point in the living room, must become an “investment”. You wouldn’t expect the same of the tiles in the bathroom, even though they might be more expensive than the art.

If you consider yourself an investor, there are some things you must take into consideration:

* that you cannot hope to start with less than Rs 20 lakh, with an annualised budget to at least match that (you can invest more by turning some of your collection around, but that should add to the kitty instead of becoming the kitty);

* that you need to select a range of works to begin your investment (in other words, buying a single Sakti Burman canvas for Rs 20 lakh cannot be considered an investment);

* collections need to be weeded ruthlessly, and while you can enjoy your choice of art, any buying/selling decision must be dictated by the mind and not the heart;

* that you should work with galleries, who can take the responsibility for prices, and for filling in gaps that, as an investor, you might find difficult to plug yourself.

It need hardly be reiterated that an investor must be fully familiar with the artist/period/series/theme of a collection, that competitive pricing be carefully monitored, and that value not be over- or under-stated. Purchase documents, provenance, and artist/gallery validation are extremely important to avoid being rooked by the fake market (which is larger than you imagine).

So all right, with the minimum base of Rs 20 lakh, what can you expect the art market to bring to the table? Too much weight is given to emerging artists, but for your money, it’s best to invest in artists with at least a proven track record of a few years, in a price range of, say, Rs 5 lakh. At that price, you won’t get the best-in-class for even mid-range artists, so you could invest in their smaller works, or perhaps watercolours and drawings, which are usually priced lower.

To ensure that your portfolio does not suffer, instead of hedging your bets on one artist, I would recommend four different artists, but with some commonality of theme. As you add to these in succeeding years, you can also trade in the drawings for larger canvases, oils or acrylics, enhancing value. But always stay with the blue chip artists instead of experimenting with the more avant-garde, who are more susceptible to being buffeted by price variations. Besides, in the current environment, even though prices for contemporary artists have fallen sharply so you can buy them up cheap, recovery is likely to be slow. Definitely avoid those artists whose prices were inflated artificially, and whose values are now not likely to recover close to those points for at least several years to come.

An art fund should ideally give you returns of eight to 10 per cent on an annualised basis under normal conditions, though in the halcyon years just gone by, fly-by-night art funds were promising as much as 20 to 25 per cent. Almost without exception, most are now in the negative and may not recover before they become redeemable (though the Osian’s art fund redeemed, remarkably, at 5 per cent earlier this month).

Gallerists might promise you much more, but if the investment value of your collection grows by 10 per cent a year on a cautious but also positive note (which might seem a darn sight less than the over 100 per cent value escalations in the recent bubble years), it might just prove better than most other investment risks — at least in these difficult times.

First Published: Wed, November 18 2009. 00:45 IST