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Vintage wealth creation

Aditi Phadnis  |  New Delhi 

Like to drink How about investing in it?

Have money and don’t know what to do with it? Consider investing in futures.

Be clear that this can only be a hobby, for laws in India governing trade in futures are fuzzy. As a wine importer explained to Business Standard, wine futures are treated like international derivatives and the law says that any product that is imported has to be delivered physically within 180 days. But if you want to invest in a 2009 Bordeaux, typically it would be ready for delivery only in 2013.

“My group would like to explore the option but accounting practices here don’t allow investment,” the importer said, declining to be identified. He added that laws permit individuals to invest in assets abroad subject to an upper limit of $100,000 annually. “But I’m not sure if wine can be termed an asset,” he said. This is open to interpretation.

However, as the community of wine drinkers in India is growing exponentially — 25 per cent a year with wine imports in 2009 amounting to $15 million — wine futures is a new avenue for those who enjoy drinking wine and only now are learning that you can actually invest in it. Myles Mayall, wine buyer and educator with the (WSI), is one of those who is following the trend eagerly. WSI has actually launched wine futures in India, is urging members to invest in a Bordeaux 2009 and is taken aback by the response.

“Several Indians have invested in wine futures and have kept their investments in bonded warehouses in France, in the hope, one day, to be able to either consume the wine or to auction it in New York or Hong Kong, when it has quadrupled in value,” Mayall said.

“It isn’t cheap: we offer a 2009 Bordeaux at Rs 15,000 a case — and assuming levels of duty in Maharashtra continue to be at the levels they are today, it will cost Rs 45,000 when it is delivered in 2013. But we’re stunned at the response. We launched the futures seven weeks ago and we’ve already sold 240 cases” Mayall added.

The way the business works, wine futures (also known as “En Primeur”) refers to buying wine after it is made, but before it is bottled, Mayall explained. Cask samples of wines are made available for tasting to large wholesale buyers in the spring following the vintage. Brokers and merchants sell the wine to their customers. The wine is bottled and shipped around two years later.

In good vintages, wine futures can offer the investor the greatest return; the initial release prices are usually the lowest at which the wines will ever be sold. “Every three weeks or so, a house will offer a wine to be set down as an investment. Depending on the response — and it is a complex business — you can get good returns. And of course, there is always the option of drinking the wine!” he said.

The 2009 vintage of Bordeaux wines is considered by many to be the best vintage in history. “From China to Europe and the US, the phenomenal quality of the vintage has created a feeding frenzy atmosphere for enthusiasts and investors, driving prices up to record levels. Some of the great names have already released at well over $1000 a bottle, and prices will only go up. The top wines of the almost-as-good 2005 vintage have already appreciated by an average of 240 per cent,” Mayall said. However, he conceded that at this point, Indians investing in wine futures number in their thousands, rather than millions. “And that’s being ambitious” he said, but added that the number will go up.

But as Indians get interested in drinking and investing in wine, it would be wise to change the laws. Rajiv Singhal, wine aficionado and deeply knowledgeable about the wine business said: “London used to be the centre for the wines futures business but the action is moving to Hong Kong fast. This is because of a decision by the Finance Minister of the Hong Kong (Special Administrative region) Henry Tang to reduce, over a period of time, import duties on wine down to zero, last year. The result is, the value of Hong Kong’s total wine imports increased 80 per cent year-on-year in 2008, and a further 45 per cent in 2009, reaching almost US$600 million. Since February 2008, Hong Kong has hosted 27 wine auctions, with sales fetching a total of more than US$130m. After New York, it is now the world’s largest wine auction centre. India has already lost the race.”

First Published: Wed, August 18 2010. 00:38 IST