PROJECT REPORT

Art As An Investment? Examining Factors Influencing Purchase Motives Towards Paintings Among Affluent

Individuals in Vadodara

Submitted

To

BBA PROGRAMME

FACULTY OF COMMERCE

THE M.S UNIVERSITY OF BARODA

VADODARA

TOWARDS

PARTIAL FULFILMENT TO THE

REQUIEMENT OF THE DEGREE OF

BACHELOR OF BUSINESS ADMINISTRATION

PROJECT GUIDE RESEARCHER:

MR LATISH KAPADI SASHANK KINI

VISITING FACULTY ROLL NO-18

DEPARTMENT TY BBA

OF COMMERCE (MARKETING)

1

Acknowledgements

Before I extend my gratitude to those who’ve helped me with this particular research project I want to, as they put it colloquially, give a ‘shout-out’ to my cousin Sukanya Rajagopalan, a First Year student currently studying Art History in Faculty of Fine Arts, MS University, for constantly involving me in conversations on art and artists.

Now, coming to the individuals who’ve helped me with the project, I would thank the Programme Director, Faculty of Commerce, The Maharaja Sayajirao University for allowing me to apply my acquired knowledge of business in the field of art, paintings to be specific.

My guide Mr. Latish Kapadi should be given special regards for accepting my project enthusiastically and giving me suggestions on the content matter that could be added to my research.

Now, the biggest help for this project was given by Mr. Vinit Nair, a passionate, young art collector based in Vadodara, whom I was acquainted with even before beginning the project. And yet, I never expected him to devote so much time in getting me acquainted with the art market. It is because of his enthusiasm in sharing information that I am more drawn towards this field and shall consider investing in paintings myself (when I’m rich enough, of course). I also thank Mr. Vikram Bhalla, a stockbroker living in Vadodara until recently when he moved to Mumbai, for convincing Mr. Vinit Nair to give my research project more priority than usual!

2

And then there is Ms. Vrushali Dhage, who provided me help during preliminary stages of research. And Ms. Seiko Kamosawa, whom I interviewed a couple of months ago, and again, whose praise of Indian contemporary art, again indirectly influenced to take up this research project.

There are many other such influences who may not even know they’ve helped me through with my project, keeping me in good spirits, and encouraging me to work hard and get quality results. Two people who helped me throughout, but do not take it as ‘providing assistance’ because they’re so close to me that they may regard it as ‘doing it out of care’, are my grandparents, Dr. Kamala Srinivasan, former Head of Home Management Department, MS University and Dr. Desikan Srinivasan, former Head of German Language Department, MS University. My heartiest gratitude to them!

FROM:

Mr. SASHANK KINI

Faculty of Commerce-BBA Program

The M. S. University of Baroda

Vadodara (Gujarat) 390002

3

CERTIFICATE

This is to certify that this project report entitled “Art As An Investment? Examining Factors Influencing Purchase Motives Towards Paintings Among Affluent Individuals in Vadodara” which is to be submitted to the Registrar (Examinations), The M. S. University of Baroda through the Director, B.B.A. Program, Faculty of Commerce, The M. S. University of

Baroda has been prepared by the undersigned Mr. SASHANK KINI (Roll No. M-18) studying in T.Y.B.B.A. 6th Semester, specialization in Marketing Management for the Academic Year 2013-14 for evaluation in lieu of

Annual Examination to be held in April,2014.

This is to certify that, Mr. Sashank Kini has carried out this work under our personal supervision and guidance. The work is an original one and has not been submitted earlier to this university or to any other Institute / Organization for fulfillment of the requirement of a course or for Award of any Degree / Diploma / Certificate. All the sources of information used in this Project Report have been duly acknowledged in it.

4

Mr. Latish Kapadi Mr. Sashank Kini

Guide Research Scholar

Place: Vadodara

Date: 07/05/2014.

LETTER OF SUBMISSION

From: Mr. Sashank KiniRoll No. M-18

T.Y.B.B.A. 6th Semester,B.B.A. Program

Faculty of CommerceThe M.S.University of Baroda

Vadodara (Gujarat) 390002Dt.: 07/05/2014

To,The Registrar (Examination)The M.S.University of Baroda-390002

5

Respected sir,

I am pleased to submit herewith the hard copy & soft copy of project Report in duplicate entitled, “Art As An Investment? Examining Factors Influencing Purchase Motives Towards Paintings Among Affluent Individuals in Vadodara” as a partial fulfillment for the Award of the Degree of B.B.A. with specialization in Marketing Management for the Academic Year 2013-14 for evaluation in lieu of the Annual Examination to be held in April, 2014.

Thanking You,

Yours Faithfully,

(Mr. Sashank Kini)

Enclosures: (1) Copy of Project Report (in Duplicate)

(2) Soft Copy [CD] of Project Report

(3) PowerPoint Presentation

DECLARATION

I hereby declare that the entire work embodied in this Project entitled Art As An Investment? Examining Factors Influencing Purchase Motives Towards Paintings Among Affluent Individuals in Vadodara has been carried out by me under the supervision and guidance of Mr. Latish Kapadi. To the best of my knowledge no part of this Project Work has been submitted for any degree or diploma to this university or any other in India or abroad.

6

Place: Vadodara Mr. SASHANK KINI

Date: 07/05/2014 T.Y.B.B.A. 6th Semester,

Specialization in Marketing Management

TABLE OF CONTENTS1. INTRODUCTION 9

2. LITERATURE REVIEW 13

7

3. TYPES OF ART 17

4. ART MARKET 19

5. ART PATRONS 21

6. ART FUNDS 24

7. ART PRICE DETERMINATS 28

8. VALUATION OF PAINTING 31

9. WEAKNESSES AND RISKS OF ART MARKET 36

10. INDIAN ART MARKET 42

11 RESEARCH OBJECTIVES 44

8

12 FINDINGS AND RECOMMENDATIONS OF IN-DEPTH INTERVIEWS

45

13 FINDINGS FROM PERSONAL INTERVIEWS (QUESTIONNAIRE)

70

14 APPENDIX QUESTIONNAIRES 72

15 APPENDIX BIBLIOGRAPHY 96

INTRODUCTIONA financial investment, whether traditional or alternative, is made with prospects of future benefits such as capital appreciation, dividends and/or interest earnings. Traditional investments refer to bonds, cash, real estate and stocks and shares; alternative investments, on the other hand, include investments in tangible assets such as precious metals, art, wine, antiques,

9

coins, or stamps, and financial assets such as commodities, private equity, distressed securities, hedge funds, carbon credits, venture capital, film production, and financial derivatives. Investments can also be categorized based on time period into long term and short term investments and secondly based on liquidity into liquid and illiquid investments. Table 1 given below classifies investments based on liquidity, term and investment type:

Table 1: Classification of InvestmentTerm

Liquidity Investment Types

Traditional AlternativeShort

Liquid Cash (most liquid) Precious Metal (e.g. Gold)

Bond (highly liquid)Money Market FundsMoney Market AccountsStocks and SharesCommodities

Illiquid Certificate of Deposit (somewhat illiquid)

Coins (as rarity for collection)

Vehicle Distressed securities (short term-medium term)Carbon Credits (neutral)

Long

Liquid - Wine (medium term-long term)Gold (i.e. Jewellery)

Illiquid Real Estate ArtAntiquesForestry (medium term-long term)Film productionHedge Fund

10

StampsVenture Capital

Risk is an element involved with both the types of investments, albeit sound decisions on part of investors usually leads to better rewards.

Perception towards alternate investments such as art and antiques has evolved over the years. Not regarded as an actual investment until the 90s, the art industry has especially gained significance as an investment option for a good number of reasons such as the follows:

a) There is high volatility in the stock market, while art, a hard asset, faces relatively less volatility

b) Unlike stock market, the value of works of art cannot be nil unless the entire cultural value consensus is withdrawn, which is very rare.

In fact, the Mei Mosei Art Market Data compiled by Glendale Trust company, USA, has concluded using Sharpe Ratio approach that art has shown greater return value as well as less volatility compared to US Treasury bills. In fact, due to contradictory effect of inflation of art and stock market, the former flourishing during above market inflation while the latter during below market, investors can diversify their investment portfolio and minimize risks by investing both in art and equities. It should be noted that since art is an illiquid asset yielding income only in the long-run, the investment shouldn’t exceed 5% of total portfolio. .

11

Also, unlike stocks, an artwork’s price reflects numerous nonfinancial intangibles, like the pleasure of owning a painting or, perhaps more important, its ability to signal the owner’s vast wealth and erudition. While stocks can provide an ongoing payment stream (via dividends) and are traded in public markets, art collectors must pay to protect their investments. It’s also much harder for collectors to resell expensive art. Not only is the market opaque, but few artists have real long-term value. The market has to be tread carefully.

As an industry, art has always been underrated and undervalued. Of late, its awareness has been increasing. In terms of being a commercially viable sector, art is still nascent and unconventional. Investments in art are extremely vulnerable, as these primarily depend on public taste. You can never guess the right price or the right time to buy or sell a piece. Bhavna Kakar, owner and founder of Latitude 28, an art gallery in New Delhi, says, "Art is not a commodity like property, stocks or gold, and it is best that way. Buy it only if you love it and can live it; else, stick to conventional investment options."

The Indian art market is expected to see enormous growth through the next 10 years. "People have become used to hearing about multi-million dollar sales of works by Tyeb Mehta, S H Raza or M F Husain. Now, the art market is viewed by many as an active commercial sector, with auctions and exhibitions held all over the world," says Harry Hutchison, associate director of the Aicon Gallery, New York, a premier art gallery in the US selling Indian art works.

12

I shall limit my research to investment in paintings, a major art form. In India, paintings comprise 99% of the art market, says Swapnil Pawar, chief investment officer, Karvy Private Wealth. Other forms of art such as sculpture and installations are mostly bought by museums and collectors. There is a sharp increase in the selling price of paintings, especially after a number of Indian artists have gained international recognition. For example, VS Gaitonde’s Untitled painting made in 1979 fetched close to 92 lakhs in 2014, the highest for an Indian artist. The figures are astronomical, hence limiting the number of potential buyers to the affluent class; however, cheaper alternatives of paintings of veteran artists are available, and they usually depend on the painting materials used. Paintings of emerging artists may require greater research on part of buyer, with greater risks involved especially if the artist loses relevance. Both first time buyers as well as experience buyers usually do their homework before making purchase decisions. Usually help of art advisory service companies such as Cranyon Capital is taken for this. The help of auction houses (e.g. OSIAN’s, Saffronart) are then used to sell the paintings, expecting it to sell at a handsome price.

Vadodara, regarded as the ‘cultural capital of Gujarat’, has become a major industrial centre as well as a hotspot for entrepreneurial opportunities. With rising discretionary income, people are willing to diversify their investment portfolio across gold, fixed deposits, equity and real estate. However, investment trends in art are comparatively slow and restricted to the affluent class. According to Mr. Vikram Bhalla, a stockbroker who had got into investing in art due to his “drive for money” but left it soon after being dissatisfied with the returns, “there are a few collectors who are hardcore art lovers and buy for long-term, but generally, art is the last option where people park their money”. He adds that “even the artists are

13

in a bad shape too. They don’t deliver the good stuff and are going through a rough patch. And this is well-known fact in the market”.

LITERATURE REVIEW

Vasari’s Lives of Artists, published in the fifteenth century, is one of the earliest and most famous records of the patronage system in Renaissance Italy. Its discussion of the prices and demands of commissions as well as the

14

intense competition among artists to win favor of the papal courts, nobility, and wealthy merchant class has informed research on the subject ever since and leaves little doubt that these issues were as divisive then as now.

The origination of public auctions in Holland and Flanders at the dawn of the seventeenth century, spreading to England toward the end of that century, helped evolve the market from an older system of courtly patronage to a more modern supply/demand economy in which members of the predominantly elite social classes vied for distinction through their purchases—and through the public display of bidding itself. Scores of secondary accounts on the history of the art market have left no shortage of research on who bought what, why, and for how much. This spans the excellent writing on the origins of modern consumer culture in Italy during the Renaissance to the extensive sales records and social histories unearthed in other fascinating research on the seventeenth century Dutch art trade. Other recent books have shed new light on centuries old issues by looking at how concepts such as signaling and signposting, drawn from the sphere of game theory, apply to earlier patronage systems: what did artistic commissions signal about their patrons, and how were they used to assert one’s stature within the society of the time.

Richard Rush’s Art as an Investment (1961), one of the i rst books dedicated exclusively to this subject matter : Is investing in art, rather than merely collecting, a viable pursuit? Gerald Reitlinger’s The Economics of Taste (published in three volumes between 1961 and 1970)global art price levels, commonly believed to have shattered previous records for years on end dur-ing the latest boom, actually only drew level with their peak of 1990 in 2007–08 more art was being seen and discussed by wider audiences than ever previously— there was little doubting which public much of it actually

15

served: an upwardly mobile elite with money to burn. These include an extended period of corporate profitability and equity market appreciation, dating to the mid1960s, that has encouraged largescale investments in the infrastructure of the art market (from galleries and museums to fairs, biennials, and ancillary services); widening levels of income disparity, most acute and disproportionate at the top end of the earnings spectrum, setting the bedrock for new art buyers; the winning out of privatization over public sector subsidizing, inspiring greater innovation for artists and arts institutions to make ends meet; and lastly, leading on from each of these points, the preeminence of finance, which has yielded new ways of thinking about and conducting business across diverse economic sectors, including, though hardly limited to, art.

In the decade from 1998 to 2008, worldwide sales of contemporary art at auction swelled from just $48 million to over $1.3 billion, representing a more than eightfold rise in the sector's market share, from 1.8 percent to 15.9 percent of the global fine art trade. During this same period, contemporary art would also overtake Impressionist and modern art as the most valuable sales category at the world’s leading auction houses, an astonishing feat given the longstanding supremacy of these established categories and the sheer speed of its ascent; immediate rewards of collecting contemporary art: it looks and feels unmistakably like “art” and can enhance one’s sense of cultural erudition and fashion wherewithal in a single turn; its meanings and values can be easily shared, communicated, and reinforced (through social engagements and via media outlets); and there is a visceral competitive thrill in acquiring it—in being ahead of the curve and standing to benefit from a newly discovered artist’s sudden popularity. In the aftermath of the Scull sale, a more financially shrewd era in the art market seemingly emerged. Dealers, artists, and collectors became more status and investment conscious, both the scale and ambition

16

of work grew ever larger, and prices were set more aggressively. BRPF’s art investments were designed to hedge the inflationary risks of this period; the passage to a more fluid system of international trade was a major step in the construction of a truly global art economy; and this increasingly pervasive free market ideology led to the diminution of publicsector arts funding and the acceleration of policyled arts subsidizing crystallization of the link between postmodern theory (of which Lyotard was one of the most famous exponents by the late 1970s) and aesthetic dematerialization.

Opportunity cost of presenting them diminished— notably video, experiential and installation art, and practices that have since been popularized under the rubric of “relational aesthetics.”: India’s art exports surged from €2.6 million in 2000 to €486 million in 2006, with the most rapid increase coming in 2003 when exports jumped up to €508 million, nearly one hundred times the previous year’s total. Indian Art: 684 percent; in part due to the low base to which they are anchored. They nevertheless underline the growth of prices and volumes in these regions and the new rungs of collectors who are now actively participating in the art market for the first time. India: sustained real GDP growth of 8.8; these gains were translated into robust rates of growth for the high and ultrahigh net worth individuals.

Trading in paintings appeared for the first time to a larger extent in the 15th century in the regions of Florence and Bruges. These transactions by the first existing Art dealers were mostly conducted on primary markets where Art pieces were sold for the first time. The secondary markets on which Art was resold appeared around a century later with the first auction houses opening in Amsterdam and later in London and Paris. The scope of the secondary market further expanded in the 17th and 18th century when

17

the Dutch made a decent profit by buying and selling Art. The span of the Art market shortly thereafter reached the US and reached a more global scope. In the 20th century, Art has become relatively more profitable, as could be illustrated by different price, however, not because of increasing rate of returns but because the return on the long term credits failed to keep up with the inflation in the 1970’s. This increased investment attractiveness contributed to the establishment of investment funds in the 1970’s in New York, London and Paris.

Following from this trend, one of the largest purely financial Art investments took place in 1974, as the British Rail Pension Fund invested USD360 million in Art. In the 1980’s the commercial banks responded to this expansion of the Art markets by establishing special Art banking units that offered advisory services to wealthy private investors and loans with Art as collateral. This was accompanied with the largest boom in the market created by the Japanese paying record prices for post-Impressionist paintings. Ryoei Saito, then chairman of Fuji, set a world record by paying USD82.5 million for a single painting – ‘Portrait of Dr. Gachet’ by Vincent van Gogh in the late 1990’s before the Tokyo property and stock markets collapsed and the first Art market bubble burst.

The current scenario: The Art market has not been this active since the 1990’s before the burst of the bubble. Currently the Art market has reached a size of USD5 trillion and is expected to continue the current growth pattern. This unprecedented market size is a result of a record increase of the total value of Art market sales, which grew by 95% from USD1.2 trillion in 2002 to USD1.5 trillion in 2006 corresponding to a revenue USD240.4 billion. During the same period the number of transactions also grew from 25.5 million to 32.1 million, resulting in an increase of 24%21. Taking the

18

significant increase in both Art prices and activity into consideration, experts argue that the Art market is in a better position than it was in the late 1980s. The difference this time round is that there is a greater assortment of buyers and thereby a greater spread of the risk. One explanation of the increase in Art prices is the global increase of liquidity and wealth creation that is driving up asset prices in various financial areas and markets. Furthermore, the level of Art prices reflects the increasing number of wealthy investors from all parts of the world. Russian and Chinese millionaires, along with the financial market players have taken up art as an opportunity to display their wealth and status. Will this trend continue - that is the question of interest for the future growth of the Art market.

TYPES OF ART

1) Old Masters:

19

The Old Master segment spans nearly 500 years and across countries and genres. As a result of their

historically proven track-record, they are regarded as blue-chipped and the opinion among experts is

that they are less likely to depreciate over time, compared to the other Art segments

This segment is also the less volatile of all the segments, as its long historical performance results in

a lower susceptibility for bubbles. The demand scope is also of a greater size, as these are

considered as classics.

On the other hand, the stability of this sector reduces the opportunity for an active management

strategy, in the same way as possible for the contemporary and modern art segment. The impression

and importance of the art pieces belonging this category is already established and thereby rather

difficult to alter.

2) Modern Art

Modern art has similar fluctuations to the contemporary art. It is of a lower historical track record as

it has not been on the market as long as the Old Masters.

3) Contemporary Art

20

In this segment collectors are willing to take a higher risk and in the same time have the possibility

to establish a collection without a substantive investment. The high risk and also opportunity for a

high reward stems from the element of fashion driving this segment. Thus, a relatively more

careful selection is required in order to diminish or/and offset the higher risk. Art investment

experts and Art collectors acknowledge the “depth, breadth and sustainable secular growth in the

contemporary market” and it is being depicted in Art News’ survey of the 200 most active

collectors globally where 78 % collect contemporary Art.

21

Art Market

On the primary market, all Art pieces are directly exchanged between the artist and any possible

interested buyers, thus the artist represents the starting point of all transactions. There are usually

four potential groups of buyers in the primary market: rich patrons; Art dealers who might be acting

on behalf of a private buyer; Art galleries or Auction Houses.

The price for the first sale normally reflects the supply-demand equilibrium, as the case in any other

market. The trading goods can either be work from new artists or new work from established artists.

Because of the nature of the good, this market is subject to imperfect information and transaction

costs combined with a higher risk associated with the limited recognition of the Art. The higher risk

associated with the primary market, is mainly driven by the lack of a historical price track record,

which creates valuation issues and the need of specific expertise.

22

The secondary market provides the platform for the resale of artworks that the previous owner

might desire for a variety of reasons. The composition and type of players is generally very similar

to that of the primary market, however, also many service providers can additionally be found who

mediate between buyers and sellers and advise the different parties. These interlinking service

providers, such as Art experts, Art advisories and Art banking units, increase the available

information on the market which results in a significant reduction of the risk, especially when

purchasing the most well-known Art pieces. Significant transaction costs are connected with these

transactions, as the mediating parties require fees of the range of 10-30% of the price for their

services, which in most cases are a necessity in order to conduct the transaction.

Furthermore, with over a hundred magazines reporting on Art and educating the public opinion,

information on the secondary market is easily gathered and opinions are being synchronized.

The value of any artist’s work is determined by an insider world of cultural arbiters who coordinate

with one another. They know long before the rest of us which new artist is going to have a big

23

show, who is going to be trashed in a review or whose piece was just sold privately for a small fortune

ART PATRONS

The major art market is the super-superrich, whom some economists call Ultra High Net Worth

Individuals, or U.H.N.W.I.’s. These individuals have a far more stable economy and can invest more

comfortably in alternate investments such as art. There is a rise in the U.H.N.W.I.’s in China, India

and other developing nations. India has over 8200 U.H.N.W.I. whose combined wealth amounts to

a whopping $945 billion.The number of ultra high networth individuals (UHNIs) is expected to

24

treble in the next five years to 2,19,000 which will also see the combined net-worth of those under

this category to grow five times to over Rs 235 trillion. At present, 90 per cent of the UHNIs wealth

resides in the top 10 cities of the country, Kudva said, adding that going ahead, the growth will come

more from the smaller towns which constitute a minority now. The report based on analysis of the

government data and interviews of luxury brand managers and existing UNHIs says a majority (37.2

per cent) of the investible surplus is deployed in the real estate sector followed by equities (33.1 per

cent), 20.4 per cent in debt and 9.2 per cent in alternate assets.

PURE/PRIVATE COLLECTORS versus PURE SPECULATORS

Many private collectors are not profit oriented and are therefore particularly prone to behavioral anomalies Circumstantial evidence suggests that private collectors are strongly subject to the endowment effect (an art object owned is evaluated higher than one not owned), the opportunity cost effect (most collectors isolate themselves from considering the returns of alternative uses of the funds) and the sunk cost effect (past efforts of building up a collection play a large role). A bequest aspect is also relevant: gifts of parents to their children in the form of art objects are

25

valued more highly by the bequesters than the corresponding monetary value because they transfer Change in risk. ‘Pure speculators’ ceteris paribus leave the market when unpredictable financial risk (price variations) as well as other risk factors (such as uncertain attribution) increase. ‘Pure collectors’ are, at least in principle, insensitive to these risk factors; they buy and hold an art object because they like it and do not mind if its price variability increases or if its attribution becomes more uncertain. The more pure collectors dominate the market, the lower is the financial return in equilibrium; the major part of the return is made up of psychic benefits.

An increase in the cost of selling an art object, or a restriction in selling due to government intervention tends to drive out pure speculators but should not affect pure collectors because the latter do not intend to sell their holdings (though they sometimes actually do). A rise in the cost of storing and insurance may also systematically shift the balance between types of buyers and sellers because they are likely to affect them differently.

When transactions in art are taxed more heavily, therewith also part of their own ‘nature’ financial speculators find it profitable to move to other markets. On the other hand, when the taxes are generally raised, people buying art only for financial reasons are attracted to the art market if it offers better chances to avoid or cheat on taxes than investments in other assets. The art market is then increasingly dominated by pure speculators, and equilibrium financial net return equals that in any other market. A major consideration for collectors is whether an increase in the value of their holdings is taxed (in most countries, it should be, but taxation is often not carried out) or whether it is taxed only when sold. In the latter case, the market is made even thinner.

26

Despite GATT liberalizations and large scale integrations (e.g., the European Union) the restrictions on the trade in art are becoming more severe. This hampers international trade in art, leads to the

establishment of local markets and tends to favor pure collectors who do not intend to trade.

For some genres of paintings, demand follows a systematic time sequence. Portraits are at first of little interest except for the persons represented and his/ her family and company, and are therefore traded infrequently. Provided the painter turns out to become famous, the genre becomes unimportant and the picture is traded. An example would be portraits by Titian where it matters little today who is represented. Social determinants affect the psychic benefits of owning particular genres of art objects. For instance, religious pictures representing crucifixion or the torturing of saints, motifs offensive to other religions, paintings of bloody war scenes or of dead game, and other ‘politically incorrect’ pieces of art, are out of taste today and are therefore less demanded by private collectors. The corresponding market, as far as it exists at all, is dominated by buyers who are little affected by such considerations, in particular art museums which can argue that they are only interested in the art historic aspects, or in their traditional area of collection.

Thus pure collectors tend to dominate the market, and in equilibrium psychic benefits are high and financial art market returns low in such paintings. Speculators will be active in such art markets only if they are able to foresee a change in taste - a rather unlikely event.

27

ART FUNDS

Art funds are generally privately offered investment funds dedicated to the generation of returns through the acquisition and disposition of works of art. They are managed by a professional art investment management or advisory firm who receives a management fee and a portion of any returns delivered by the fund.

The underlying characteristics of art investment funds are diverse and vary from fund to fund. While all art funds utilize some form and degree of a traditional “buy and hold” strategy, art funds differ in their aggregate size, duration, investment focus, investment strategies and portfolio restrictions.

The unifying factor of all art investment vehicles is their focus on the art market, which is characterized by a lack of regulatory authority, deficient price discovery mechanisms, the non-transparency of the market and the subjective value and illiquid nature of fine art. Proponents of art investment

28

funds argue that it is these very characteristics that generate the significant arbitrage opportunities within the market that seasoned art professionals can exploit for the benefit of the fund’s investors. Likewise, critics of art investment funds in turn point to such characteristics as denoting art as the riskiest asset class, thereby creating the potential for substantial investment losses among the fund’s investors.

Most art investment funds are administered by a professional investment management firm that is usually comprised of a mix of experienced art market professionals and professional investment advisors from more traditional hedge or private equity funds. Such a pairing is essential to avoid many of the pitfalls inherent to managing an art fund –namely either a lack of experience in the ins and outs of the art market or in managing an investment fund. Hedge fund managers will likely view art as an asset like any other to be traded and sold without having the background to identify works with the potential for price appreciation or the ability to gauge their authenticity or condition. Likewise, a former gallery owner or art dealer would likely be overwhelmed by the intricacies of raising money for, and administering, an investment fund.

As a general rule, art fund managers typically have a substantial amount of their own capital invested in the art funds that they manage, thereby aligning their interests with those of their investors.

Art fund managers perform a number of tasks for the fund such as:

identifying potential acquisitions raising capital for the fund managing investor relations

29

handling administrative compliance for the fund showcasing the investment portfolio of the fund through exhibitions and

loans to museums managing the investments including storing and properly insuring the art monitoring the art market in general and the fund’s artists in particular managing the orderly disposition of the fund’s investment portfolio

 The fees charged by art fund managers are primarily tied to performance, which serves to align the interests of such managers with those of the art fund’s investors. Typically, art fund managers charge (i) an annual management fee of between 1% and 3% of either the net asset value of the fund’s art portfolio or the total capital commitments made by the fund’s investors and (ii) a performance fee equal to 20% of any profits made from the disposition of the fund’s art portfolio.

After the fallout from the dotcom bubble, speculation was rife about how to make money from art and there was a sharp rise in the number of art investment funds seeking to strategically buy and sell artworks for profit. Yet scholarly literature on the subject was disparate and few had paused to weigh the actual business models of these investment practices or to consider their impact on the ecology of the art market. Limited information exists on the performance of art funds: the majority, like most hedge funds and private equity funds, are unregulated and do not have public disclosure requirements.

Art investment funds are not a single, extreme example of art’s instrumentality. The common denominator is the professionalization of the art industry as a whole, from the escalation of pragmatic careeroriented

30

emphasis in arts education in the 1960s to the flourishing of innovative marketing, financing, and sales strategies by galleries, auction houses, banks, and entrepreneurial art businesses today.

The evolution of art investment funds is considered in conjunction with how a market has arisen for video and experiential art, practices that previously existed on the periphery of the commercial circuit but now reside at its core inspired a first sustained wave of academic literature on art investment returns. This interest was a result of not only rapid price appreciation but a flooding of new arts institutions and geographies as well as a growing fixation with art celebrities (spiraling outward from the cult of Andy Warhol, who died in 1987). Sotheby’s inauguration of its Financial Services Division in 1988 and sales made by the British Rail Pension Fund (BRPF), the first genuine art investment vehicle, at the end of the decade shined further attention on questions of art’s economic worth.

In 1974, a portion of the BRPF’s capital was invested in over 2,500 works of art during a six-year period. The BRPF was reportedly able to deliver an aggregate return of 11.3% per year compounded from 1974 to 1999.

After BRPF’s foray into the art fund arena, there were over 50 proposals to create art investment vehicles, some offered even by certain of Wall Street’s most prominent financial institutions. Such proposals never truly got off the ground and other attempts that followed met with disastrous results due to, among other things, overpaying for their art works and failing to properly manage their operational expenses.

Today there are a number of funds that have successful launched. Most famous of which is The Fine Art Fund founded by Phillip Hoffman, a former executive at Christie’s auction house. While the results of The Fine Art Fund are not publicly disclosed, such fund is rumored to be doing well, and its

31

managers have either launched or announced plans to launch other funds focused on the Chinese and Indian contemporary art markets.

Notwithstanding the foregoing, it is clear that the art fund industry is today at a crossroads and the ultimate direction of the industry will ultimately be decided by whether art fund principals, professionals and promoters are able to convince the investment community that art funds are not simply a recent curiosity but a valid and permanent part of the alternative investment world.

 

As of August 2008, there were five art funds operating in India. Osian Art Fund was launched by Osian's-Connoisseurs of Art Private Ltd while Yatra Art Fund was supported by Edelweiss. Copal Art Fund, after a series of funds worth Rs10 crore in 2006, launched a fund worth Rs150 crore with an option to invest in paintings of one's choice. With a minimum and maximum investment of Rs5 lakh and Rs2.5 crore, Copal Art Fund offered flexible payment plans without any lock-in period.

 The fourth fund, Crayon Capital Art Fund was launched in November 2006, had art critic Ela Dutt as advisor and Vadehra Art Gallery as main source for buying and selling. Indian Fine Art Fund was set up by UK-based The Fine Art Fund group founder Philip Hoffman. This five-year close ended offshore fund had an initial corpus of $25 million.

Art funds are risky. Osian art fund, started by Neville Tuli in June 2006, had to be wrapped up in 2009 after a poor performance. It had also faced a probe by the Securities and Exchange Board of India and is still in the

32

process of returning money to investors. Osian’s case is elaborated in the chapter ‘Findings of In-Depth Interviews’.

ART PRICE DETERMINANTS

Supply The first distinction needs to be made between deceased artists and living artists, as a continuous

supply from the first is non-existing. Whereas Art creation or supply from the currently active

artists can be regarded as either commissioned by the buyer or speculative, where there is no

guarantee for a subsequent sale. This is thereby leading back to the motivation factor of the artist.

Schneider and Pommerehne view the supply in the primary market to be contingent on the

production costs and the expected selling price51. This implies that a higher production cost or a

low expected sales price can have a reducing effect on the supply side.

In the secondary market there are various supply sources as, for example, museums, Art dealers or

wealthy individuals. Here the supply is contingent on the total produced and sold Art. The supply

33

motives in this resale market are determined by taste, necessity of liquidity or expected sales price.

This implies that Art owners will only sell when they do not enjoy their investment or are interested

in a financial benefit. An interesting feature of the museums is though that they exhibit just one

quarter of their total stock. This has an interesting implication on the price, as this impacts the level

of scarcity in an artificial way. This is further supported by the opinion of the supply of Art among

Art dealers currently has been that “getting good Art is harder then selling it”. This scarcity is also

reflected in the lower transaction fees at the auction houses. This supply-level is secured by a

conscious decision of supplying the market sparingly, and thereby keep the prices artificially high.

Demand

The demand side for Art includes a number of participants, such as Art galleries, museums,

corporate collections, Art dealers, and private Art collectors etc, who do differ in size, awareness,

taste and motive. However, there are five overall determinants of the level of demand56 which could

34

consequently be also regarded as drivers of or brakes to Art prices.

Wealth

Wealth is regarded by most researchers and practitioners to be the most influential determent of the

demand for Art, as it is the minimum requirement for purchasing Art.

Expected Return

A high expected return on Art is the main driver of demand when it is seen from an investment

perspective. The increase in demand of Art is therefore caused by the anticipation of a future gain.

The expected return can either be determined based on active investment management or from the

state of the Art market, illustrated by the Art indices.

Taste and Preferences

Lastly, the demand of Art can to a certain degree be acknowledged to the changes in isms and the

current vogue for Art. When the Art market makers change the focus on a “new” type of Art the

35

demand most likely follows and thereby can change in a rather fast and also unpredictable direction.

This shift can both occur during an intended market change and also when the individual investor

simply changes their preferences for Art. The difference between these two categories of demand

shift is that the first is relatively more controllable as it concerns a greater segment of the market,

where as an individual taste change might not have such a significant influence on the demand.

Lastly, the increase in data about the Art market and Art market participants is a clear indicator of

the increase in demand59. This has in the same time a reinforcing effect, as the available information

will further increase the demand for Art.

36

VALUATION OF PAINTINGTo determine the capital or price appreciation of a painting it is inevitable to be able to determine

value of the Art works concerned. The value of Art can either be established directly by conducting

a sale, or indirectly by reference to other sales or through one of the various valuation methods.

The valuation of Art is also a quantitative indicator of what actually is considered to be Art.

When it comes to pricing Art, the experts are divided into two camps – the one that believe there

exist a relative logical way of pricing the priceless and the other that believes that “there is only one

indicator for telling the value of paintings, and that is the salesroom”. The later believes that the

market is the decision mechanism that determines the type, amount of Art supplied and the

corresponding price when it comes to the contemporary Art. This is however not the case with the

Art created by dead artists, as the supply is limited by their lifetime.

In order to value Art prior to an investment and anticipate price changes, we will put emphasis on

the opportunity to value Art from a rational valuation model. Even though that Art is difficult to

value, the professionals do attempt to reach a valid valuation based on some value determinants.

37

There is not a common standard weight-division for the value determinants and is therefore rather

individually determined amongst the Art appraisers and other experts.

The method most often applied to determine the intrinsic value of an Art piece is to look at the

hedonic characteristics of the painting. These are represented by the following,

Authenticity Subject Matter Physical condition Technical quality(compared to all the works of the artist and the peer

group) Size of the painting

Besides these hedonic and rather visible qualities, the strategic impact and financial performance

also can be incorporated in the overall valuation. These aspects are,

Collect Evidence Exposure level of the Art piece

Scarcity(as this can signal excellence) Track-record of sales prices Reputable vendor Sales price of similar works

38

This attempt of pricing the priceless is the most applied by the practitioners. According to the

Sotheby’s website, presale estimates are based on an “examination of the item” and “knowledge of

the prices achieved by similar objects.” This illustrates that a combination of the hedonic

characteristics and a benchmarks can give the best possible information base for an evaluation. An

auction house system provides merely a way to obtain approximately the current market value and

can only be regarded as a benchmark.

The valuation issues arise mainly as art is a unique good, and thereby the valuation is based on the

individual’s perspective. Furthermore, the valuation is not valid over a long time horizon, as for the

trends on the art market are rather unstable.

Here is an example of how a painting is evaluated:

SUBJECT PAINTING

39

ARTIST: Birger Sandzen (American, 1871 - 1954)

TITLE: "Night Poplars in Moonlight"

DESCRIPTION: Oil on canvas, Circa 1920, 24 X 32 Inches, Signed lower right corner.  Titled, signed and noted "Lindsborg, Kans" on the stretcher

CONDITION: In excellent condition

FRAMING:Framed in original frame

APPRAISAL NOTES

1. This appraisal is submitted, using images and information supplied by Ourbest Clientius Max, without direct inspection of the subject painting.

2. The work of Birger Sandzen appears regularly in the art marketplace through galleries and auction houses. This evaluation of the subject painting is made primarily from its relationship to similar works sold at auction. The findings for auction results for the artist are listed in Appendix “A” of this report.

3.  The prices shown in Appendix “A” include the buyer's premium charged by the vendor. Typically, auction houses charge 10 - 20% commission, plus add-on fees for photography, insurance, storage, transportation and other services normal to their business.

4. The specific comparable images of paintings by Sandzen, chosen from the hundreds we researched, are included in this report for the

40

reasons of, first, similarities;  second, paintings specifically contrasted with the subject painting to show the different color and style relationships typical of the artist; and third, to show how value is affected by size.

5. There was a significant break in Sandzen's career, when his use of color and style made significant shifts.  These shifts also make significant effects on the artist's prices in the marketplace.  This time period was in the late 1920's and early 1930's, when the artist moved to using less color in his work and more carefully applied strokes. The era, especially of the early '20's, is the most desirable for his work, and later works bringing lower prices.

6. The most popular subject matter for the artist are the brilliant and colorful setting sun paintings from Kansas and Colorado.  Color is the prime determiner of the value for Sandzen's work, with the earlier works from the 1920's being the most colorful of all of works done during the artist's career.  The subject painting, while having strong colors in the blues and greens, has very little dramatic contrast (being a night scene), and the more subtle color of the subject painting is against it for its value.

7. Size is also a factor in the artist's work.  Of course with all other aspects being equal, the larger sizes bring higher prices in the marketplace.  The large size of the subject painting is a plus factor for its value.

8. The composition of the subject painting is unusual for the artist. There is virtually no identifying landscape composition to offer clues to the painting's place of execution.  The background suggests a mountainous terrain, typical of the Colorado and Utah scenes, but the execution leaves plenty of room for conjecture. Also, the manner in

41

which the composition was cut off, with no real landscape showing, is unusual.

9. The drama for the subject painting is created mostly in the fact that this is a night scene.  The lighting is subtle, but expected with the chosen time for the work.  The overall effect is striking and this work must be considered a major effort by the artist.

10. Provenance of the subject painting places it back to the home town of the artist, Lindsborg, Kansas.  The history places the painting from a gallery in McPherson, Kansas in 1922 or '23.  Support for its date has been provided by family members of the owners, who have recalled the painting as far back as the 1930's.

11. The condition of the painting is excellent, indicating good care and conservation.

 CONCLUSION  The subject painting is a major work by Birger Sandzen, both in size and scope of the composition.  The lack of dramatic color contrasts as well as the unusual nature of the painting's composition are mitigating factors to its value.  The provenance of the painting is compelling and there is no reason to doubt its authenticity.  The painting is in good condition and well cared for, adding to its desirability.

  EVALUATION OF THE SUBJECT ARTWORK:

Birger Sandzen: "Night Poplars in Moonlight"         $40,000 - 60,000 USD

42

WEAKNESSES AND RISKS OF ART MARKET

The Art market differs from most other market as a consequence of the peculiarities of Art as a

good. The most significant market characteristics are the following,

• Information inefficiency

• Information asymmetry

• High transaction costs

The quality and amount of the available information differs greatly, as Art pieces are unique and

therefore relatively less fungible. The market is furthermore not fully aware of all the existing Art

works, their location and condition. This is additionally supported by the lack of a common

valuation method. The sum of these factors and various others result in the significant level of

information inefficiency.

In addition to the inefficiencies of information, a high degree of information asymmetry exists at

the art market. The uniqueness and related difficulties to value Art pieces contribute to the

asymmetry of information among the different participants. The seller has significantly more

43

knowledge about the good, and in order to gain the necessary level of information, a unprofessional buyer would have to seek expert advice from an Art advisor or Art dealer, and

thereby their position changes to an insider role. This need for information is a clear indicator of

the lack of symmetric information and has additional implications on a possible investment process.

The described issues of information availability and quality combined with the high margins

requested by each participant of the Art market lead to the already high transaction costs. The high

transaction costs has similarities with real estate investments which also suffer from a relatively

lower liquidity as it puts pressure on the profitability level and amount of sales conducted.

The higher transaction costs and uncertainty ultimately result in fewer transactions and thereby a

decrease in the liquidity of the market, impeding further the flow of information and increase

transaction costs. These interrelations among the characteristics and consequences of these reinforce

the market imperfection and complexity.

The character of Art contributes to an unnaturally high price control on behalf of the selling side,

which resembles monopolistic conditions. This is evident in the status of the two major auction

houses Sotheby’s and Christie’s, that despite having just 9.15% of the total number of auctions,

44

they handled 76% of the global fine Art market turnover. This additionally strengthened by an

average price of lots sold at USD91,805 compared to the average of USD7,156 for all auctioned

lots. On the demand side the consumers are unorganized, which contributes as well to the

establishment of market failure.

Additionally, the relatively high transaction costs, low liquidity and lack of an adequate level of

information also increase the market inefficiency. Frey acknowledges as well the impact of

innovation, as imperfections can be created when the demand does not adjust to the innovative Art

occurring in the supply.

However, it is worth noticing that the increased level of activity of the auctions houses benefit to the

amount of available information and have historically reduced some of the market imperfections45.

Additionally, the modern information technologies have improved the information level, and

allowed the broader public to follow the development of the art markets. However, it is important

to mind the biases existing from these information channels, as they mainly are used for marketing

and promotion purposes.

45

The implications of such market imperfections which are reflected in the increasing returns of and

monopolistic tendencies among suppliers one should theoretically be able to earn excess returns.

This should not be possible based on commonly known information on an efficient market, and

thereby a market failure can be concluded. However, the challenge for the Art investor arises from

pursuing the possible excess while avoiding the pitfalls that are so closely connected with this

invest segment. The idea is that because the art market "is highly inefficient, there is substantial

opportunity to outperform through active management of a portfolio of art," says Bruce Taub,

chairman of Fernwood. "Over the long term, the financial trend is that art goes up with the

economy.

In contrast to traditional commodities, however, paintings are not of uniform

quality but highly unique and experience accordingly also significant price differentiation. Even if

paintings were considered to possess comparable features and be of equivalent quality - for

instance, because they are from the same artist, of similar size, condition, texture or similar - their

actual market value might significantly deviate.

46

Transaction costs are high. The costs that occur in relation with the investment can be classified in the following categories,

• Investment selection consultancy fee

• Authentication fee

• Purchasing and selling fee

• Insurance fee

• Storage fee

• Transportation fee

• Investment management consultancy fee

• Monitoring fee

Art is what economists also denote a ’positional good’: worth something because it is limited in

supply and many people desire owning it. It is not only the absolute consumption, i.e. the welfare or

pleasure that an owner derives from looking at his Art piece that influences his well-being. What is

more, utility and therefore the value assigned to paintings is also (if not exclusively) a function of

Art pieces’ ranking in desirability in comparison to other substitutes and the prestige that the

ownership confers. Especially expensive paintings are status symbols which demonstrate the wealth

their owners and most importantly the ability of to afford something their peers cannot. Therefore it

is also often referred to as a ’bragging good’.

47

Art as a good has many different characteristics that entail it to be in different

good-classes at the same time. This has an implication for the investment opportunities, as it implies

significant susceptibilities, which impact the liquidity on the market and introduce additional

uncertainty. Future price determination also is influenced by the increased unpredictability.

The Art market is not as liquid as most other markets. This will result in a decrease of the demand, as the investor’s liquidity need increases. Liquidity can be regarded as one of the main disadvantages and risk-creators for Art as an asset compared to other financial assets. Art is considered to be less liquid, not divisible and with a high transaction cost compared to other assets. Furthermore, the time-delay between the decision to sell and the actual sale increase the illiquidity of Art even further Though, the relatively low liquidity characterizing Art investments, there is a possibility of increasing the liquidity by lending against the Art pieces with a transaction time of less then 30 days and at competitive bank rates77. Additionally, the financial liquidity can be secured for a longer time horizon, as the majority of the loans are long term - of course for a premium.

Resulting from the valuation issues stems the prone to irrational exuberance and art bubbles. This

irrational behaviour of the market participants represents both an opportunity and a threat and

highlights the critical importance of right timing of purchase. The investors will only profit, if they

48

manage to cash in at the peak of the bubble. However, in the case of bubbles, the standard valuation

tools and rationality assumptions are no longer valid. This represents a threat to the unknowing

investor, as an appropriate timing for the exit might be difficult to identify.

Furthermore, the art can accidentally be damaged. Taking into account its uniqueness and valuation

issues, this represents a great threat for the investor, as the full investment or appropriate price

appreciation might not be reimbursed.

Also, the value of any artist’s work is determined by an insider world of cultural arbiters who coordinate with one another. They know long before the rest of us which new artist is going to have a big show, who is going to be trashed in a review or whose piece was just sold privately for a small fortune.

Because the art market isn’t regulated like financial securities, insider dealing is generally not illegal.

49

INDIAN ART MARKET

It was in late 1990s when Indian art first emerged on the global scene with major international auction houses including Christie's and Sotheby's auctioning both modern and contemporary Indian art. After a sudden upsurge in early 2000s the Indian market witnessed a drastic dip in the later half of the decade.

Between 2000 and 2007, the Indian art market grew at an unprecedented scale with the market size growing from $5 million to $350 million. In fact, several of the Indian artists' works were sold for more than $1 million. The international auctions played a vital role in drawing world's attention towards Indian art and pushing up the prices. In parallel, the art scene at the home turf was also witnessing a revolution.

50

A whole gamut of activities was undertaken to propagate and popularize Indian art. A large number of art galleries and online art auction houses sprung up in different parts of the country. This led to an increase in the number of exhibitions, participation in the art fairs across the world and collaborations with international auction houses and galleries thus garnering more attention for both the modern and the contemporary Indian artists. The online art auction houses of the likes of SaffronArt were instrumental in making the art more accessible to people. The buyer base broadened with a new breed of investors and collectors entering the market. By then, Indian art had already carved its niche in the hearts of true art lovers.

After the euphoria for the first seven years, the prices of Indian artists mellowed down. Bothe modern and contemporary artists began showing a falling trend. Raza’s paintings, for example, dropped by 20%. After Vasudeo S. Gaitonde's 1979's painting fetched Rs.23.7 crore ($4 million) in Christie’s India debut, optimism renewed in the Indian art market.The London-based auctioneer's entry into India was definitely the highlight of the year and the inaugural sale raised Rs 96.6 crore - double the pre-sale expectations.

For the Indian art market to compete at global level, it is imperative to take serious steps towards creating a robust and vibrant art culture in the country. The foremost player in this regard is the government. It must increase its role by holding more public exhibitions, setting up public spaces for intellectual discussions on contemporary and modern art and bringing out high quality publications on art. Art can also be introduced as a subject in schools. Moreover, friendly tax policies would further boost the environment and might attract more philanthropic contributions in the field. Second, a greater transparency in prices and trading is needed. Third, an

51

artists' forum must be created to bring together the artists for healthy debates and discussions of ideas. As of now, artists are working in isolation and do not have a platform to come together and voice their concerns. In addition, more space needs to be created for young and experimental artists. Chameleon art project is one such initiative in this direction and there is a need for more.

Nevertheless, the Indian art market is here to stay and is expected to grow at a sustainable rate in the coming years. The buyers are more informed about the artists and their works. They are buying art not only as an investment asset but also for the sake of art; therefore, they wouldn't hesitate in shelling out more for a good art piece.

Further information provided in ‘Findings of secondary research’.

RESEARCH OBJECTIVES

The main objectives of the research are as follows:

a) To examine factors motives towards paintings among affluent individuals in Vadodara

52

b) To analyze investment trends/levels in art among affluent households

in Vadodara

c) To evaluate productiveness of art as an investment option

From the research we shall know:

i. Correlation between Level of Knowledge of art (paintings) and Investment Attitudes/Levels in Paintings

ii. Appraisal of Various Sources Providing Knowledge On Art (Paintings)

iii. How Indian investors evaluate paintings

iv. Relationship between level of income and investment in paintings

Findings And Recommendations of In-Depth Interviews

Originally, I had planned to conduct an interview schedule with art gallery owners, art collectors, art fund managers as well as art auctioneers, fine art

53

students and local artists. However, limitations of time and the complexity of understanding the art market and framing a questionnaire that would yield thorough response proved to be a daunting task, especially as a result of shortage of secondary information on investment trends in Indian art market (while auction statistics were present for deals conducted in metro cities, there wasn’t sufficient information on investment trends in painting pertaining to Baroda. Insufficient documentation and the lack of ready availability of information made it a challenge to understand the Indian art market and the current investment trends.

Certain help was provided by Ms. Vrushali Dhage, an art history lecturer at Faculty of Fine Arts, MS Universtiy, at the beginning of conducting the survey. She suggested browsing Christie and Sotheby auction sites for information, as well as remarking that the studies conducted by her are artist specific and that it would be better to conduct a study of the whole market due to limitation of time. Although I had originally planned to conduct an interview with Ms. Dhage after collecting secondary data, ultimately, that didn’t happen for lack of time.

Finally, it was decided to collect information from art collectors, although I tried to structure the questionnaire in a manner that it could be answered by experienced art investors as well. There are no art auction houses in Vadodara as confirmed by the art collector I interviewed, who explained that the major auction houses are established in Mumbai and Delhi; therefore, it wasn’t possible to collect information from art auctioneers. Also, talking of art fund managers, after OSIAN Art Fund wrapped up in 2009, India hasn’t seen much development in art fund firms. The art collector therefore advised me to strike of questions about art funds for subsequent interviews.

54

Designing the questionnaire took about four-five days, as it proved difficult to frame questions that would provide insight about Indian art market. I had also decided not to ‘keep it short and simple’ as an experienced collector would be extremely acquainted with the intricacies of the Indian art market and would therefore be willing to expound on the current market scenario. The questionnaire asks the collectors/experienced art investors about their personal motives to purchase art and their investments in art funds; however, much of the survey is designed to get a collector’s/experienced investor’s general views on the art market (the risks and rewards, the opportunities and threats), the relative importance of various factors affecting valuation of painting, the level of information and trustworthiness of sources that provide knowledge on art, views on popular art magazines (also source of knowledge), views on art fund, the situation of art market in India over the next twelve months, common mistakes made by Indian investors in art that lead to poor/negative returns, factors deterring Indian investors from considering art as an investment option, and finally, the level of awareness on art and investment in Baroda. The questionnaire ends with the respondent’s advice to first time investors in Indian art and recommendations on artists, art collectors, art advisors, art galleries, art dealers and art museums.

My sole respondent for in-depth interview is an art collector having 13 years of experience in the art market. His name is Mr. Vinit Mohan Nair, and he currently runs an advertising agency in Vadodara. I got in touch with him through Mr. Vikram Bhalla, a stockbroker who tried his hand at investing in painting by consulting Mr. Vinit but ultimately quit the market after not making sufficient returns. While speaking to me, Mr. Bhalla remarked that “there are a few collectors who are hardcore art lovers and

55

buy for long-term, but generally, art is the last option where people park their money”. He added that “even the artists are in a bad shape too. They don’t deliver the good stuff and are going through a rough patch. And this is well-known fact in the market”.

Much is to be blamed on the 2008 Global Financial Crisis, which along with real estate bubble burst, also resulted in the art market bubble bursting, which affected India to a great deal as ‘Indian contemporary art, after a 700% gain for ten year run, faced a 30% decline in 2008 and 09’. According to Mr. Vinit, “Art is largely affected by international economic trends”, and the crisis hit the Indian art market hard. There were, however, positive changes caused by the recession, which shall be discussed later.

You may notice that the questionnaire for art collectors is titled ‘Art as Investment? Learning From Exprts the ABC of Purchasing Art (Paintings) for investment purpose and the current trends in Indian Art Sphere’; this temporary change in title was thought upon after I was unsure whether I shall be able to design a questionnaire for affluent households in time. The next chapter shall explain the difficulties of obtaining relevant data from households, although this chapter shall briefly touch on the magnitude of art investors in Vadodara (which, being miniscule makes it challenging to get information from core market.

In-depth interview was conducted with Mr. Vinit Nair on 3rd May 2014 between 12:30pm and 2:30pm and valuable information about the market for contemporary Indian art was obtained, along with tips and suggestions on investing in paintings, and insights into situation of Indian artists. Although most of the questions were closed-ended (and the original time limit was restricted to 15 minutes), Mr. Vinit voluntarily gave input based

56

on his considerably long experience as an art collector. We should note that he is only within the age-group of 25 – 35 years, but he says he’s “one of the few to begin investing big-time from an early age itself”, and that “people usually invest in paintings after the age of 30, usually the moment in their lives (i.e. if they’re well-to-do) salaries exceeds Rs 20 lakh income bracket, which he adds is “the time people are financially well off to think about investing in paintings or other art forms”.

Other details on Mr. Vinit – he has done his Masters in Games and Graphics, he is the son of ____, the founder of Sabari Chemicals Pvt. Ltd. (which means he has always belonged to an upper class family), he owns paintings by the late maestro MF Hussain, popularly known as the Indian Picasso, and KG Subramanyam, one of the pioneers of Indian modern art, among others. We can be thoroughly assured about his credibility as an art collector.

We shall only focus on the major findings of the depth interview, which are highlighted below along with necessary information:

A) Positive Correlation Between Knowledge And Awareness on Art and Demand For Paintings: “If an artist has little knowledge about Indian artists, has not read a single art book or art magazine in her or his life, then all we expect from her or him is to compare Indian contemporary paintings with those available at Shoppe”, asserts Mr.

57

Vinit. Now, this statement would make art seem like a field with a highly niche audience, but Mr. Vinit also puts in that “Art lies in the eyes of the beholder. You may have an opinion towards any art, even if you do not know much on the technical aspects of art. But please refrain from comparing an acrylic on canvas work by Tyeb Mehta with poster art. Real art explores line, shape, depth, form and subject in complex ways.” The question here is, how do we gain enough knowledge about paintings (and other forms of art) and whether doing so shall impact our buying or investment patterns/levels in art?

Experts agree with the notion that good knowledge of the artist, the medium, the time period,etc. helps in better investment decisions. Menaka Kumari Shah, country head, Christie's India, says, "The best investment is to buy what you like and then, regardless of its value, you still have a work of art you like. We always advise our clients to buy the best work available in their budget, and buy with passion for the art." The problem may also involve ‘lack of passion towards art’, which is one of the reasons people are unable to appreciate the value of art. Certainly better knowledge would impact any person’s passion towards the art. Here, another question rises: How do we raise a person’s inclination towards arts in a way that makes her or him more passionate in knowing about art, which ultimately might increase the chances of that person to purchase or invest in art? Role of Education and Family in Increasing Investment

Trends in Art – Mr Vinit Nair emphasizes on the fact that cultivating through education at primary and secondary level on Indian art, contemporary Indian artists, the various art forms and styles, and basically ‘sensitizing minds who would otherwise take

58

everything black and white to art since an early age’ shall increase demand for Indian paintings, as well as awareness towards investment possibilities of art. “You can’t do things all of a sudden. Our art museums are not attracting enough public as they do in Europe. Now if a person has not been emotionally tuned from the beginning towards art, his visual thinking (and appreciation) shuts down at an early age.” This may recall the left brain vs. right brain theory, which states that the abilities popularly associated with the left brain are ‘language, logic, critical thinking, numbers and reasoning’. while the abilities that are popularly associated with the right side of the brain include ‘recognizing faces, expressing emotions, music, reading emotions, color, images, intuition and creativity’. Although Mr. Vinit points out that ‘the conservative and astute nature of Indians regarding saving and investment habits has made them better investors than American counterparts’, Indians still do not show enough interest towards investing in art because of their general lack of appreciation towards art.

For this, Mr. Nair blames the school curriculum, which, especially in case of State Board, has marginalized subjects of art while giving high importance to language, science and mathematics. “Teaching faculty shouldn’t be blamed. They only reflect the curriculum, which should be improved to incorporate more subjects pertaining to art”. He praises the ‘inclusion of liberal education in schools and colleges (FLAME School of Liberal Arts and Symbiosis School of Liberal Arts (Pune), Asoka University (NCR), Pandit Deendayal Petroleum University (Gandhinagar), Rabindra Bharti University (Kolkata), Jindal School of Liberal Arts and Humanities (Haryana), Apeejay Stya University (Gurgaon)) may help in developing general intellectual capacities that widens a human’s understanding level

59

on different matters’; however, a quick glance through Wikipedia reveals that there are far more colleges providing liberal education in countries like US, Canada and UK.

Let us take the case of FLAME School of Liberal Education. The courses offered include ‘introduction to ethics’, ‘academic writing’, ‘critical thinking and logic’, ‘development towards sustainability’, ‘physical and natural sciences’, ‘fine arts and performing arts, including subjects such as dance, drama, music, filmmaking, music appreciation, sculpture, theatre, visual art, calligraphy, drawing, application of creativity and design, classical Indian drama etc’, ‘global studies, including Ramayana, Mahabharata, Philosophy of Yogasutra, foreign languages’, ‘anthropology’, ‘economics’, ‘political theory’, ‘psychology’, ‘sociology’, ‘archeology’, ‘art history’, ‘aesthetics’, ‘Indian and Western art theory’, ‘Knowledge and the Modes of Thought’ etc. [you can visit the following site for more details on liberal education in FLAME: http://www.flame.edu.in/program/school-of-liberal-education/program-details].

When people aren’t ‘sensitized towards arts and aesthetics’, they fail to find appreciation in many of the modern and contemporary paintings by Indian artists and make remarks like “my daughter or son can make better drawings than this (only to show a picture book full of Doraemon and Pokemon diagrams)”, according to Mr. Vinit. Talking about family, even parents and relatives play an important role in shaping an individual; a parent is one of the important reference groups a child looks up to especially at the early stages of life, the latter trying to imitate the behavior of

60

parents and be influenced by the choices made by parents, including in matters of buying and consumption behavior. Mr. Vinit says ‘A child’s subsequent appreciation for and attitude towards the arts generally begins in the family, with people talking about art at home’.

As many schools nowadays are increasing the involvement of parents in their child’s education by holding parent-teacher’s meetings, parent’s committee etc, there are programs established in schools where parents get to interact with their children albeit under supervision of the teachers, hence helping the former to play a more active role in their children’s education. Let’s look at one such program conducted in the field of arts:

‘The Teachers Involve Parents in Schoolwork (TIPS) Volunteers in Social Studies and Art program… a three-year program (that) integrates art appreciation into the social studies curriculum by engaging volunteer parents in the presentation of important artwork “to increase students’ knowledge and appreciation of art and to demonstrate connections of art with history, geography, and social issues.” A 1995 evaluation of the program … indicated that students increased their awareness of art while developing “attitudes and preferences for different styles of art.”Student comments indicated movement from concrete to abstract thinking and development of critical thinking. about art. They began to identify major artists and their works and to “describe and discuss art with greaterinsight and sophistication than they had done before.” The evaluation concluded that the TIPS program is a “useful tool for

61

meeting the diverse goals of involving families, integrating subjects, and providing students with experiences in art awareness, appreciation, and criticism’.

A painting may largely involve aspects of arts and aesthetics, but it may represent a wide range of themes or subject matters such as war, landscapes, prostitution etc and emotions such as anger, love, reverence, bliss, joy etc. An artist interprets the situation or emotion using aesthetic means on a visual medium (i.e. canvas/paper) and this interpretation may or may not be understood or appreciated by all. Here is where a person’s knowledge, not just on art but also on a range of other subjects, either through learning or experience, provides support in deepening his level of understanding and appreciation (or lack of ) towards the painting. This also happens in other situations, such as buying a car for example, in which an inexperienced car driver may have general set of complaints and complements for the performance of the automobile while an experienced person may have more specific reasons to criticize or appreciate the same. But of course, your satisfaction level towards a particular car may have little correlation with say, your knowledge about contemporary poetry (in fact none). But the intellectual nature of art expressed aesthetically may require persons to have certain knowledge on other otherwise unrelated subjects in order to develop their sense of appreciation towards art. Therefore, a strong foundation through inclusion of wider range of subjects in school or liberal education in college can play a role in making individuals wiser decision makers while investing in art; simply knowing the art to invest with little knowledge or appreciation of art may not benefit in the long run, or

62

even if it does, it may not yield the ‘psychic costs’ that’s an important motive that affects purchase of art.

And the programme TIPS suggests, inclusion of parents in enhancing children’s appreciation towards art may positively impact both a child and a parent’s perception towards art. A child may, in the future, show inclination towards purchasing a painting, and a parent may do so the very moment! But of course, we shouldn’t forget that there are various other factors affecting an individual’s decision to look at paintings from an investment point of view.

Various external Sources for Providing Knowledge on Art: Mr. Vinit’s opinions was taken on the level of information provided by different external sources on art and its trustworthiness. He rates art advisors ‘medium’ both on level of information and trustworthiness, adding that “art advisors are generally agents of galleries and so they sell what they have to sell i.e. under gallery’s influence”. A medium rating for both Level of Information and Trustworthiness criteria is also given to ‘Auction Houses’, ‘Art Fair’ and ‘Internet (blogs)/Newspapers’. Art Dealer is rated low in both; it is possible that an art dealer may buy the painting from an individual for a certain price and use his reputation, knowledge and advantage of arbitrate to sell the same painting immediately at a far greater price., therefore to consult an art dealer for buying or selling paintings may or may not be profitable for investors. However, private buyers do take guidance of art dealers frequently for their level of knowledge on the art market (although the latter

63

may or may not divulge certain information based on her/his own vested interest). Mr. Vinit gives ‘high’ to both criteria of Level of Information and Trustworthiness for ‘Art Collectors’ and ‘Art Museums’. For the latter, he says that ‘everything has to eventually reach the museum and therefore most comprehensive knowledge on paintings (as well as trustworthy) can be obtained from museums. Most pure collectors are not profit oriented and are therefore particularly prone to behavioral anomalies, are strongly subject to the endowment effect (an art object owned is evaluated higher than one not owned) and the sunk cost effect (past efforts of building up a collection play a large role), and the psychic benefits matter far more than opportunity costs or risks involved. It is collectors who dominate the market and because they are to a larger extent insensitive to price, apart from them being active players in the market, they can be trusted as source of information, just like museums. Auction houses, art advisors, art galleries, art fairs, art dealers etc may be more interested in making profits from sale and hence be less trustworthy than art collectors or art museums. Another source for getting information is ‘Art historians’; while Mr. Vinit has been critical on art historians while talking on magazines as a knowledge source (please refer to the next paragraph), he does commend the art history department in Faculty of Fine Arts, MS University , Vadodara as a valuable source for getting information about Indian painters and their works.

Gaining Knowledge through magazines: Mr. Vinit seems to hold a very critical view on art magazines, rating it ‘low’ on level of information (knowledge) obtained and ‘medium’ on trustworthiness. He deems them to be “irrelevant” and candidly opines that “they’re

64

written by a loser bunch of art historians”. He is especially critical towards Art India magazine, which according to the magazine’s website, is ‘India's premier art magazine (which) over the last eleven years, has been responsible for the promotion of a critical discourse around diverse art forms, activities and disciplines…. ART India has been responsible for giving a platform to artists and critics to engage in a mutually replenishing intellectual dialogue with each other... ART India has been launched successfully in Dubai, New York, London, Lahore, and Karachi, among other international venues. ART India has a huge international following and has been chosen by Beaux Arts magazine, Paris, as one of the leading art magazines in the world’.” It is based in Mumbai.

Mr. Vinit’s share of complaints regarding the quality of Art India as a magazine to refer for knowing about and investing in art include – “zero coverage on current trends in Indian art market”, “very poor information both on pre-modern and upcoming artists”, “uninteresting to read”, “ no suggestion on investment”, “80% focus on advertising and 20% on content”, among others.

He recommends TAKE on India Magazine instead, and rates it high on ‘Providing thorough knowledge on current trends in the art market’, ‘Follows up on upstart/promising artists in the market’ and ‘Is interesting to read’ categories. He adds that while Art India centers on advertisements, TAKE on India gives “80% information and 20% content”. TAKE on India, as described on the magazine’s website, ‘is an art quarterly published from New Delhi. It caters to artists, art collectors, dealers, educators, students, historians, architects, film makers, poets, designers and museum curators

65

wherein each issue promises to comprehensively publish reports and critiques on art and cultural events from India and abroad. TAKE addresses in comprehensive and candid tone relevant issues encompassing varied genres ranging from painting, photography and new media to the burgeoning art market, international fairs and changing art trends, both in India and abroad…”.

There is a third art magazine known as ‘Art & Deal Magazine’ which Mr. Vinit also recommends, rating it ‘high’ on ‘Follows up on upstart/promising artists in the market and ‘Is interesting to read’ but adds that the “they were bankrupt because they were good, having reduced the quantity of information and restricting the magazine to metros”. The magazine’s website describes it as ‘having progressively brought the best of the art world coverage from national and international art scene since 1998. Magazine has grown from its nascent stage to be a definitive international source of commentary and analysis of contemporary art & culture… exploring art in every aspect along with painting, sculpture, photography, print, new media, installation, film , books, architecture & design. A magazine with serious commitments to make art reach the homes of masses.’ Another art magazine recommended by Mr. Vinit is Domus, as it provides “some art coverage”. A comparative study between Art India Magazine, Art & Deal magazine and TAKE on India Magazine is given on the next page.

We shall have to conduct a survey among other individual from the art field (art collectors, artists, art curators, art historians, art gallery owners etc) to get their views on which magazine they would recommend for individual investors wanting knowledge on

66

art and information on art market. The current views are highly subjective and therefore inconclusive, however, we may learn from this that the perception of quality may of art magazines may vary depending on the knowledge of individuals on art and his need for information. Mr. Vinit puts it well, rather humorously, that “Those unfamiliar with the art world should pick up Art India, make an investment in painting based on their recommendations, lose money and then finally end up learning they were reading the wrong magazine in the first place and should’ve just picked up TAKE!. There is further scope for studying trends and opinions about Indian art magazines, for sure.

A comparative analysis of Art India, Art & Deal Magazine and TAKE on India Magazine:

Art India Magazine

Art & Deal Magazine

TAKE On India

Magazine

Based In Mumbai Delhi Delhi

No. of Issues Per Year

4 (quarterly) 12 (monthly) 4 (quarterly)

Subscription Rate

1 Year – Rs.560

2 Years (8 Issues) – Rs. 960

1 Year – Rs. 1200

2 Years – Rs. 2000

1 Year – Rs. 750

2 Years (8 Issues) – Rs. 1500

The chart reveals that Art India and TAKE on India are quarterly subscriptions, while Art & Deal Magazine is a monthly subscription. In terms of price, Art & Deal Magazine is found to be the cheapest (Rs.

67

120 per magazine in case of 1 Year), followed by Art India (Rs. 140 per magazine in case of 1 Year) and TAKE on India (Rs. 187.5 per magazine in case of 1 year). The data shows that while Art India and Art & Deal magazines reduce their average price for 2 year subscription (Rs. 120 and Rs 100 respectively), TAKE on India keeps it the same (Rs. 187.5) for its 2 Year Subscription.

B) Art Funds Failure: Mr. Vinit says “he took a wise decision not to invest in OSIAN’s art funds”, which despite its growth of 146% in the first year and 172% in the second year ultimately failed in 2009 after a poor performance. Its dues during failure were more than Rs. 40 crore. It had also faced a probe by the Securities and Exchange Board of India and is still in the process of returning money to investors.

Mr. Nair’s statements on Osian’s funds echo an article written by Forbes on the failure of its founder Neville Tuli in making measured investment decisions. “Mr. Tuli was a man with great ambitions, but he was a failure as a fund manager. An art fund can certainly help those who can’t afford say, a famous MF Hussain painting, or who don’t know how to buy paintings to accumulate a portion of his funds with those of others in collectively buying an expensive art work. At that point of time, the minimum cap ranged for investing in such funds ranged from Rs. 25 lakh to Rs. 50 lakhs, which is still a high amount. And the first few years witnessed a huge growth, which got in more parties to invest in the fund. I strongly believe such funds can help in price appreciation in the market, but because they are not regulated by SEBI, it becomes very risky to invest in such funds that aren’t being monitored. These funds need to be regulated by the

68

government and only then shall they sustain and be extremely successful investment avenues”.

Although this has been mentioned in Forbes article, which is given in a concise form on the next page, we learn that an experienced art collector like Mr. Vinit believes Indian contemporary art market can witness a boom and avoid a crash if the government regulates art funds. Opinions of other players in art market need to be taken to evaluate the extent to which they agree with those presented by Mr. Vinit. Also, Mr. Vinit advises me to strike off some questions about art fund as their growth in India is negligible after the fall of Osian’s.

CASE OF OSIAN’s ART FUND FAILURE

. Osian art fund was started by Neville Tuli as part o OSIAN’s Connoisseurs of Art Private Ltd in June 2006. Tuli came to India in the mid-nineties, when the Indian art market was notoriously inefficient, with dubious practices and grey dealings dominating the scene.

Tuli started with a charity for Indian art called HEART (The Tuli Foundation for Holistic Education and Art), which helped him connect with artists, collectors, dealers, and galleries. He then produced a book called The Flamed Mosaic which brought him instant celebrity status and gave him a foothold in the art world as a serious player.

69

After HEART failed in 1999, Tuli founded Osian’s Connoisseurs of Art in 2000. By 2005-2006, Tuli’s company had reported revenues of Rs. 65 crore and a healthy profit of over Rs. 11 crore. It went global with a subsidiary and its first office in Dubai. Tuli confidently forecasted the consolidated profit after take to reach Rs. 110 crore or an expected revenue of Rs. 460 crore by 2009-2010.

 

In June 2006, just when the stock market was down but the art market peaked, expecting to grow at nearly 100%, Neville Tuli announced the launch of an art fund amid an economic boom Banks such as BNP Paribas and ABN Amro referred their wealthy clients to buy units in Osian’s Art Fund and in return got hefty fees of up to 20 per cent in some transactions, according to a person who was involved with the issue. The banks together earned nearly Rs. 5.5 crore. The fund raised an unprecedented Rs. 102 crore. 

Board members of Osian Art Fund’s asset management company included Gautam Thapar, Ashok Alexander, Lord Meghnad Desai, corporate lawyer Cyril Shroff and Pramit Jhaveri. One of the directors of the trustee company was former Securities and Exchange Board of India chairman D.R. Mehta. Osian’s Art Fund had inventories including artworks of 146 artists, including by famous names like MF Hussian, Bikash Bhattarchjee, VS Gaitonde, Akbar Padamsee, Jogen Chaudhary, Somnath Hore and Tyeb Mehta. According to Tuli, the firm owned more than 2.65 lakh pieces of art, objets d’art and pop

70

memorabilia. More than 650 investors spread across 39 cities bought units in the fund. India; investors included Sanjeev Khandelwal of Khandelwal Laboratories, industrialist Gautam Thapar, Citibanker Pramit Jhaveri, Sheshasayee Properties of Kumar Mangalam Birla, Priya Paul of Apeejay Surendra Group, HCL Corporation Ltd., Roshni Nadar, Gates Foundation’s Ashok Alexander, celebrity cook Tarala Dalal, MphasiS founder Jaithirth Rao, Kamal Morarka of Gannon Dunkerly and Sangita Kathiwada etc.

Because recommendations by Securities Exhange Board of India (SEBI) to regulate art funds were never finalized, Osian’s art fund could garner successful net asset value (NAV) of Rs. 121 in February 2007, barely six months after closure. The NAV of the Fund’s units rose to Rs. 138 within two years of launch before falling to Rs. 128 in January 2009. By the time the scheme matured in July, it had fallen to Rs. 112.

In the absence of a regulated active market, the net realisable value has been estimated on the basis of management’s expectation thereof, taking into account, where applicable, prices of similar paintings sold during the period. Tuli was responsible in deciding the value of stock based on forecast, considering he hand-picked every piece of work. A grave mistake made by him was to overpay for works he desired, paying many times more than the then current market values for artists like Akbar Padamsee, Gaitonde, Husain, Jogen, etc.

71

Although the valuations were based on an art index, the index itself was also created and managed by Osian’s in association with The Economic Times, a financial daily owned by the Bennett, Coleman and Company that is an investor in Osian’s. Therefore, unlike the case of mutual funds, in which a clear conflicts of interest would have arisen between the parties, Osian’s benefited because of the unregulated nature of art funds in India. Osian’s also had indirect control, according to 2 KPGM officials, on Cabochon Arts (an auction house), a dealership set up by Tuli and transferred to his close friend Sangita Kathiwada, also a shareholder in Osian’s and her son Digvijay Kathiwada in 2007.

In mid-2009, when the fund finally closed, investors weren’t paid for five months. Cheques were then sent for 85% of the principal amount only to a few investors, that too only 85 per cent of their principal. Optimistic valuations by Osian’s management of the art it owned and its ability to sell it in a falling market kept the NAV of the fund much higher than what could have been its actual market value. Soon, revenues from the auction house dried up and Osian’s was falling short of liquidity, having used up its entire working capital and overdraft lines of about Rs. 55 crore with a slew of banks during the year. Its bank loans increased from Rs 65. crore in March 2008 to Rs. 106 crore a year later. The company could not pay loan installments, statutory dues, overdue creditors, key man insurance premium and even salaries in Delhi. 

To meet urgent payments, it borrowed money from private companies

72

such as Globe Commodities, Solaris Holdings and Mahalakshmi Glass Works in the form of inter-corporate deposits paying interest ranging from 18 per cent to 30 per cent per annum. Inventory levels shot up from 186 crore to about Rs 230 crore while sale of its own stock plunged to a third and margins collapsed by nearly 80 per cent..

Tuli also landed in trouble with both Abraaj Capital and international auction house Christie’s. Tuli’s offshore company Bregawn based in Jersey Isles was acting as the purchasing agent for IAAF and had accordingly signed an agreement with Abraaj in June 2008. The June agreement listed a total loan of about $23.7 million to Bregawn in the previous month. Abraaj has moved a London court to recover the money for which Neville Tuli has also given a personal guarantee. Also, auction house Christie’s reportedly held on to art worth almost a million dollars that Tuli purchased for Osian’s because Bregawn owed it millions of dollars. Osian’s moved court to prevent Christie’s from re-auctioning the art works, claiming Bregawn to be a separate company and, therefore, not responsible for that company’s liabilities. Tuli’s companies also owed close to US $8.8 million to auction house Sotheby’s, for which the latter is holding art property as collateral against the debt. Howevr, Tuli rejected all claims, saying Osian’s didn’t owe anything either to Christie’s or Saffron Art’s and claimed that it owed only Rs. 1 crore to Sotheby.

Indian contemporary art had only 3 paintings until then fetching value in excess of Rs. 3 crore and during the boom, 102 paintings in the previous two years to have crossed Rs. 1 crore. Detractors predicted that the the art market seems to be quite small for the size of Osian’s fund, which ultimately proved to be true. The fund’s failure brought

73

down the prices of the works of M.F. Husain and F.N.Souza in the fund’s portfolio. Osian’s Connoisseurs of Art Private Ltd is going through its worst phase in its nine-year existence.

C) Insights on Indian Art Market Post Boom Period: As we know, demand for Indian contemporary art shot up astronomically for a ten year period before a declining in 2008 and 09. Mr. Vinit believes the market “shot prematurely and did not deserve such a boost in a short span of time”. He says “For example, you get a painting just before the boom period for Rs. 10000. It suddenly shoots to Rs. 500000 so you hold it. You see that your investment in paintings are making marked progress and so resort to buying more paintings speculating the prices to rise further. And here we should remember that the Indian art market is largely affected by international economic trends in the market. So if there is no circulation in the art market in places like London or New York, the entire world market will take a huge hit.”

And this is exactly what happened following the period of boom. The market suddenly hit rock bottom in 2008 as the economies world over collapsed due to global financial crisis. Many critics and analysts believe that post 2008 Indian art almost disappeared from the global market. After a 5 year slump, the market once again looks buoyant, with total sales of $100 million in the year 2013. However, the performance remains dismal vis-a-vis the global market which is of the tune of $65 billion. China alone houses 13 of the 20 largest art auction houses in the world and accounts for 23% of the trade. On the other hand, India accounts for only 1% of the trade.

74

“So now you are to sell the investments you made in painting for a depressingly low amount.” Mr. Vinit remarks that many paintings by established artists such as MF Hussain were worth more in 2000 than they are now. But he expects the next twelve months to witness a positive change in the Indian art market; he described the supply or output of Indian art, the sales level, the average return of investment, art exports as well as online auction activity in art to rise. He says “contemporary arts has hit rock bottom and there’s no way prices can go any lower. The only way to go is north”.

He gives us refreshing insights on the response of Indian artists during boom period. “In one way, the recession has filtered the kachra out. What I mean to say is that artists are now giving more value to the quality of their works. See, nowadays, to make a name as an artist, one does not need to have great technical skills in painting. In fact, many established names often hire smaller, unknown artists to complete the technical aspects of a painting or any other artwork for them. Therefore, during the boom period, there was an influx of artists, many without a ‘journey’, who began selling their works and made huge profits. But the recession hit everybody, and many genuine artists were left stranding, with not a single painting getting sold in auctions, art galleries etc. They became strugglers and had to get back to their former life of working in poor conditions, drinking roadside tea etc. There was no distinct showcase in the last four years in Indian art market, and in such a bad situation, many artists who shot up during boom period had to look for other sources of living. Earlier, the biggest auction houses in India would hold a yearly auction, but now they hold three, because most remain unsold! People

75

too are becoming choosy while buying art, and the true artists who’ve survived the slump period are focusing on quality. So I think this is certainly a good time to invest in art; you are getting quality paintings at bargain rate.”

He remarks that the recession was “just a myth in India, as we Indians only invest 14% of our earnings and utilize the remaining 86% of consumption or savings. As we could quickly get out of the slump period compared to countries like US, our general mood is better, especially with the development opportunities promised by prime ministerial candidate Mr. Narendra Modi. If our mood is good, if we anticipate our income levels to rise, it’s possible we might look towards investment in assets such as paintings”.

A statistical study known as ArtTactic Indian Art Market Confidence Indicator conducted between May and October 2012 to measure investment confidence in art market showed that there was an increase in the confidence level by 10% (from 52 to 57) in the six month time period. The confidence level for contemporary Indian art market during the same period increased from 39 to 44 (by 12%), which although below the 50 level, still signaled a positive outlook because the Expectation Indicator for the next six months was 53. Christie's auction held in Mumbai on 19th December 2013 rekindled interest in the dynamics of Indian art market. For many, the auction's astronomical sales figure of Rs. 96.6 cr is a sign of resurgence of the market. In 2014, VS Gaitonde’s Untitled painting made in 1979 fetched close to 92 lakhs in 2014, the highest for an Indian artist.

76

Many experts are optimistic about the future. Christie's international director of Asian art Hugo Weihe remarked “We believe India is a dynamic growth market with great potential and believe that India, Indian collectors and Indian art will increasingly become a significant contributor to our future growth internationally”. Arun Vadehra, director of Delhi and London-based Vadehra Art Gallery (VAG), also held similar albeit more optimistic views as those of Mr. Vinit on the impact of weakening of rupee on Indian art market, saying that “The weakening of the rupee has not affected the art market at all. It is a unique market, an asset of passion. Therefore, outside influences do not affect collectors' decisions (here)".

Mr. Vinit has an example to drive the point home “A relative of mine recently offered a Bhupen Kakkar painting bought by him for Rs. 30 lakh for sale, expecting it to rise by maximum value of Rs 20 lakh but was stunned when the painting was sold for Rs. 2 crore. Look, a good painting by an artist of the stature of Bhupen Khakhar would be liquid every 3-4 years, but it was certainly a pleasant surprise that it could sell for such a high figure”.

D)Valuation of Paintings and an Indian Investor: Mr. Vinit was asked to rate the importance of different factors affecting the valuation of paintings, such as the artist’s reputation, the track record of sale of the painting, prices of the artist’s other works, sales price of work of contemporaries, channel of conducting sale or the reputation of the vendor in the art market, physical condition of painting, scarcity of supply, size of the painting and so on. Apart from rating on scale of low-average-high, Mr. Vinit also revealed certain peculiar

77

characteristics of Indian investors which impact valuation of a painting in a different way that it would generally apply for investors:

Size of the painting: Mr. Vinit says that although size of the painting shouldn’t be of much importance in evaluating its value (“I’ve seen the actual Mona Lisa. It’s a small 30 inch by 21 inch work. A collector like me would understand its value better. But I bet a number of Indians, for whom a painting by a smaller artist is valued in terms of square feet while one by an established artist is valued in terms of square inch, would say ‘Is this small thing actually worth millions?’), size of the painting does matter to most Indians, who feel more satisfied with a larger painting that they can display prominently in their homes, offices etc.

Most sites do mention ‘size of painting’ as a factor that affects valuation. ‘Generally, bigger works of art are appraised higher than smaller ones, usually because of the degree of difficulty involved.’ states wikiHOW.

Physical Condition of Painting: Although it has high impact on valuation, Mr. Vinit says that there is “a problem of proper storage facility of paintings” in India, and that the “fluctuating climatic conditions” definitely impacts the condition of the painting. Storage and maintenance costs are expensive, and despite having 13 years of experience as an art collector, Mr. Vinit says “he has only learned 50% about proper maintenance” largely because of lack of facilities. The facilities required include temperature control and humidity

78

control, and it’s the ultra-rich who can afford to have that. In metros like Bombay, spaces are rented out with the sole purpose of storing painting in appropriate conditions; the rental charges are usually very expensive. Mr. Vinit feels that there is the lack of knowledge regarding maintenance of paintings. His simple tip for investors in paintings would be to “keep paintings exposed to air so they don’t catch fungus, and so it is better to hang it on the wall than put in the attic”. He also warns to carefully maintain works by contemporary Indian artists which, if damaged, may depreciate the paintings’ value to a larger extent than it would if the painting were old.

Sales Price of Works of Contemporaries: Indian consumers, being highly price-sensitive, usually browse through other works and always consider price as an important factor while investing in paintings. Hence, even though Mr. Vinit believes that sales price of works of other contemporaries should be low in determining value of a painting, since Indian buyers use it more while evaluating alternatives, he gives this criteria ‘medium importance’.

Channel of Conducting Sale / Reputation of Vendor or Buyer: Mr. Vinit says the reputation of vendor or channel through which sale is conducted plays a highly important role in art valuation. “If a person owning a painting by say a popular Indian contemporary artist sells it to a reputed gallery, he is obviously bound to fetch more money than he would’ve from an unknown one. More important than the

79

reputation of the artist or the quality of the painting is the reputation of the vendor or channel. A vendor makes the artist.” He proceeds to give the example of reputed art collector Charles Saatchi, who according to Mr. Vinit, could build or destroy an artist’s reputation. For example, “After Charles, who is one of the most important persons in art right now, bought the works by Subodh Gupta and PG Santosh, the price of their works became extremely expensive within six months.

Scarcity of Paintings: Artificially reducing the supply of paintings used to be done “left, right and center” during the boom period but it is not possible now, with the low sales and price drops.

Reputation of Artist and Exposure Level of Art Piece: For this, Mr. Vinit cites his own example. “I got a painting many years back which was made by KG Subramanyam in the forties. It’s a simple painting of a peacock, but its shot up to Rs. 30000 over the years, and the fact that KG Subramanyam received the Padma Vibhushan in 2012 plus that he permitted me to print the peacock on my marriage cards has resulted in further increase in valuation”. An art work has to sustain itself this way for its value to be appreciated. It and its artist both need to have a history, a journey.

E) Concentration of painters: “Nearly 7 out of 10 painters in the art market are from Kerala” says Mr. Vinit. Kerala, having a communist regime, gives birth to art because art is a very strong expression

80

arising out of the fearless attitude developing with communism, according to him; “Baat baat mein rally wahin to hota hai…. We should all be aware that the Indian contemporary art market is dominated by Malayalam artists”. In fact, Raja Ravi Varma, one of the greatest painters in the history of Indian art, whose paintings of mythological characters and sari-clad women are commonly seen in most houses ( not the original, of course, in most cases) was from Kerala.

Mr. Vinit also claims that “Artists from Kerala would never vote for Narendra Modi because they shall not forgive him. They have very strong sentiments against him”. Time shall tell whether Mr. Modi, if he becomes the Prime Minister, shall support the rebellious nature of Malayalam artists, which will surely be visible in their works. He had visited Kochi in Kerala only a week before and describes it as a “Modern day Paris”; actually, these arrangements have been made for the upcoming biennale Kochi art fair, initiated by Krishnamachari Bose And Riyaz Komu. Massive support has been given by the Kerala government and a number of foreign galleries are participating. Where there is freedom for art to burgeon and support from government, there is production of daring, unconventional, landmark art works. Another place where art thrives is also the birthplace of Rabindranath Tagore – Kolkatta, where art is one of the prime talk among people.

Mr. Vinit is critical about the quota system. “We have the best art college in India in Baroda, and yet of the 70% quota for students from Gujarat, we are not allowing the best students access the best

81

education. How many Patels have made it big in art? Most Gujaratis are strong businessmen, not strong artists”.

Attitude of Barodians Towards Art: While Kerala and Calcutta are the places where most artists are produced, it is the metros like Delhi and Mumbai where the biggest sales take place. The highest interest in art after Shantiniketan is in Vadodara, the Sanskaari nagari, says Mr. Vinit. The problem, according to him (and he puts it frankly), is that “Gujaratis don’t usually belong to art world, and they don’t understand something ‘that’s too good to be true’, which is why they invest less in art. The atmosphere in Vadodara is far better than in Ahmedabad, but people are still reluctant to make larger investments in paintings here. They think it’s better to invest in a one lakh painting and get multiple works than get a good quality painting worth one crore, when in fact, the latter may have more potential.” He expects the art market in Vadodara to flourish in the upcoming years with the level of growth and development. “As people invest more in real estate, they shall have to purchase paintings to deck up their new homes. The awareness towards investment in art is low among Barodians currently, so they prefer to invest in something as liquid as gold. They should know that after precious metals, art is the next big alternate investment. In fact, sometimes the returns in art are far better, but people here invest in the wrong stuff. They think investing in 5 smaller, less valuable paintings is better than investing in one painting of greater value, without assessing its potential as an investment”.

F) Miscellaneous Findings:

82

i. I asked Mr. Nair to rate his personal motives for purchasing art. He rated ‘High’ for the motives ‘I love art’, ‘I want to support promising artists’ and ‘I want to impress others with my collection’. In fact, he’s often supported promising artists by providing them funding to make paintings for him. The art market would be handicapped without collectors like him. Some of the paintings are bought with the intention of keeping them as long term investment for his daughter. Mr. Vinit says here “I would buy paintings by old Masters like Hussain for long term investments because they are relatively stable and mostly tend to rise in value”. He also takes says that ‘high risk’ (in terms of high investment) should be taken on established artists to offset the magnitude of depreciation in value to an extent, that is if the value falls. To check whether demonstration effect played a role in his purchase, he was asked whether he would buy paintings because those in his social circles bought, but he rated it as low. However, this may or may not apply for other investors, and only a larger sample study shall reveal further information.

ii. He says Pakistani art is also in great demand in the current international market. Pakistani art is usually based on themes of violence. Japanese art on the other hand is less in demand because more than paintings, their market is known for antiquities like cutlery etc. During an interview I had conducted on March 24,

2014 as a freelance writer for ourvadodara.in, I got to know from my interviewee, Seiko Kamosawa, a Japanese student currently completing her undergraduate degree in Painting from Faculty of Fine Arts, MS University, that she wanted to learn Indian art because it was far more in demand in the world market than Japanese art. Indian art is also in places in countries like Dubai, Hong Kong, New York and London.

83

iii. Mr. Vinit says investment risk levels is directly proportionate to the artists in whom investment is being made and category of investor. For budding artists it is extremely high while for established artists, it is average.

iv. Auction house may be expensive because of the buyer’s premium charged by them, but the authentication certificate provided by them along with their documentation of the painting helps in raising the value of the painting.

v. The quality of the artwork need not be particularly good if the significance of artist is high. Mr. Vinit says “Any art by an established, enduring artist becomes an antique in the future. Raja Ravi Varma might have scribbled a few drawings during his early years without considering selling them at all. But the same may be worth a lot today because of his reputation”.

vi. The world is quite glamorous for mainstream collectors. “You’ll soon be meeting Vijay Mallya at parties or invited all the way to London to visit the inauguration of an art gallery, your air travel and expenses borne by them! It’s become like IPL today. But it as sophisticated as it is in Europe”

vii. In India, one can get good advice on art and build up good relationships with other players depending on the cash in her or his wallet. Just relationship holds no value, Mr. Vinit puts it plainly – money matters.

84

.viii. I asked Mr. Vinit to recommend a couple of names for first-time art

investors in Vadodara:

a) Vadodara Based Artists – T. Venkanna and Balaji Penna.

b) Artists based outside Vadodara – Farhad Hussain, George Martin

c) Auction Houses – Saffronart.com, Astaguru.com

d) Art Advisors – PD Dhumal (Dean of Faculty of Fine Arts, MS University), Mr, Jayaram Poduval (Head of Department, Art History, Faculty of Fine Arts, MS University)

e) Art Galleries – Sarjan Art Gallery, Uttrayan Art Foundation

f) Art Museum – Lalit Kala Academy

ix. Mr. Vinit Nair’s first advice to any investor in the art market would be “To focus on Old Masters, and only buy quality works”.

x. He lastly gave the names of a few major art collectors in Vadodara – Mr. Mallika Amin (collecting since 35 to 40 years), Mr. Rakesh Agrawal (he owns the Art Village in Jaspur Area), Mr. Paresh Saraiya (he works at Transpek), and Mr. Krishnaraj Chauhan. I was to conduct depth interviews with these art collectors but due to time considerations, I have avoided that. However, for further research, it would be helpful to get the opinions of these people.

85

FINDINGS FROM PERSONAL INTERVIEWS (QUESTIONNAIRE)

During the depth interview, I came to know that there were only about hundred art collectors and big investors in Vadodara and data collection would hence be difficult. Also, rather than examining an affluent household’s buying decision process while purchasing paintings, I learnt it would be better to examine whether their level of knowledge and interest towards art, both through formal education and informal education as well as through early exposure to the world of art (influence of family and friends) affected the three attributes – that of frequency and level and motives of investing in paintings.

Income levels may also affect these three attributes, and therefore I’ve asked details on their level of income along with enquiring their chances of increasing their investment in art if their level of income increased. I’ve also asked about the investments they’ve made in paintings in the last three years, and the approximate price of each painting.

I have also put questions on whether they have consulted any sources while investing in art. This would help to examine if the people visit the same sources which art collectors recommend, or whether they consult other sources. For example, an individual entering art market for first time having no contacts may approach an art dealer or art advisor instead of an art collector for consultation.

86

Since magazines are more popular and easier sources of getting updated information, I’ve asked a few questions on art magazines read by individual households, to know if they’re reading the same magazines recommended by experienced art market players or not.

I’ve asked them to rate their level of comfort while investing in other assets to compare it with their level of comfort investing in art. Basically, this can also give adequate information on the general investment attitudes of people.

Lastly, I’ve included some hypothetical questions to know their attitudes in case there is a change in the independent variables (their level of income rises/ they were more educated on art / they had better access to sources etc). I’ve used a Six point Likert Scale for the same, rating between ‘Definitely and Very Probably Not’.

Unfortunately, due to lack of time, I couldn’t conduct the questionnaire schedule. It took me a couple of days to revise my former opinions on art which led to delay in time and preparation of questionnaire. This questionnaire can be further improved but for the time being, it provides a good idea on how affluent households can be approached with questions on their investment trends in art.

87

Appendix – Questionnaires

A) For In-Depth Interview with Art Collector/Art Investor

Art as Investment? Learning From Experts the ABC of Purchasing Art (Paintings) for

Investment Purpose and the Current Trends in Indian Art Sphere

The purpose of this study is to learn from established art collectors and experienced individual art investors in based in Baroda the risks and rewards, opportunities and threats prevalent in the art market in order to give potential investors insight on art as an alternative asset for investment.

88

In case of a collector, who may participate in the art market for reasons different than investors’, the formers’ expertise and understanding of the Indian art market may help investors in better decision making.

Statistics reveal that painting comprise majority of art market in India, and there survey shall only require information pertaining to investment in Indian paintings (and painters).

Please enter your personal details below

Name: _____________________________________________

Age Group:

25 – 35 years ________

35 – 45 years ________

45 – 55 years ________

55 and above ________

o Please mention your current occupation: ___________________________________

o Yearly Income:

a) Less than 20 lakh ________

89

b) 20 lakh – 1 crore ________

c) 1 crore – 10 crore ________

d) More than 10 crore ________

o Education: _______________________________________________________

o How many years of experience do you have as an art collector/ art investor?

a) 0 – 5 years ________

b) 5 – 10 years ________

c) 10 years and more ________

90

Rate your motives as an art collector:

Motive Strength of Motive

Low Average High

a) I love art

b) I want to support promising artists

c) I want to guide prospective investors in decision making

d) I want to get profitable returns from art investments by selling them at the right time

e) I want to diversify investment portfolio

f) I want to impress others with my collection

g) Because those within my social circles do so

h) I see it as a long-term investment for my children

91

General Questions on Art investment

How would you rate the art market on the following basis:

Criteria Art Low Medium High

1) Effectiveness of investment in short run

2) Effectiveness of investment in long run

3) Investment Risk

4) Investment Liquidity

5) Investment Costliness

6) Value as a Prestige Good

92

Art valuation is dependent on a variety of factors. Rate the following factors based on their level of importance in determining value of art:

Factor Level of Importance

Low Medium Highi) Reputation of Artist

in Art Market

ii) Channel of Conducting Sale / Reputation of Vendor

iii) Track Record of Sales of the painting

iv) Prices of the Artist’s other works

v) Sales Price of Works of Contemporaries

vi) Exposure Level of Art Piece (at auction house, galleries etc)

vii) Current Economic Trends in Overall Art Market

viii) Technical skills

93

involved in the process of painting

ix) Physical condition of Painting

x) Size of Painting

xi) Scarcity (of supply of paintings in market)

Questions on Knowledge about Art

The following are sources for obtaining knowledge on current trends in art market. Rank them based on importance in gaining knowledge on art trends and mark how often you get help from the sources:

Source Rank Based on

Level of Information

Rank Based on Trustworthiness

Low Medium

High Low Medium

High

Art AdvisorArt Magazines Art Collector Auction House Art Fair Art Dealer Museums (Curator)Internet (blogs/ websites)/Newspapers

94

Through which other sources can an investor obtain information on trends in the art market?

__________________________________________________________________________

Which art magazines do you refer for getting information on art? Answer the questions given in the table. Leave blank if you aren’t familiar with the magazine:

Name of the Magazine /

Details

Art India

Art & Deal Magazine

Art Illustrated

a) Provides thorough knowledge of current trends in the art market

Name of the Magazine /

Details

Art India

Art & Deal Magazine

Art Illustrated

b) Provides valuable information about major players in the art market

c) Gives historical information pertaining to pre-modern artists and their

95

worksd) Follows up

on upstart/promising artists in the market

e) Is interesting to read

f) Offers advice and suggestions on making profitable investment decisions in art

g) Is simple to understand, especially for those readers unfamiliar with art world

Any other magazines that provides information beneficial to investors of art __________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Questions on Art Fund

96

1) Have you invested in an art fund? If yes, please name the fund/s in the space provided and proceed to question 3.

a) Yes ________

b) No ________

i. _________________________________________________________

ii. _________________________________________________________

iii. _________________________________________________________

2) If no, tell us why not and skip to next section:

a) Lack of awareness about art funds in India ________

b) Minimum investment amount is high ________

c) Management fees are high ________

d) It does not produce satisfactory returns ________

e) Negative reputation of art funds ________

f) Any other reason (please specify)

____________________________________________________________________

_____________________________________________________________

97

3) How would you rate the performance of the art funds in which you’ve invested in terms of:

Criteria Low Medium High

i. Return on Investment

ii. Stability of Return

iii. Net Profitability (deducting fees)

iv. Management Efficiency

v. Firm’s Trustworthiness

What do you feel about the following statements?

1) Art funds can help in

a) Price appreciation in the art market

i. Strongly Agree ________

ii. Agree ________

iii. Neither Agree nor Disagree ________

98

iv. Disagree ________

v. Strongly Disagree ________

b) Providing help to investors possessing little to no knowledge of current trends in art market.

i. Strongly Agree ________

ii. Agree ________

iii. Neither Agree nor Disagree ________

iv. Disagree ________

v. Strongly Disagree ________

c) Art funds in India are performing well and are promising as investment opportunities.

i. Strongly Agree ________

ii. Agree ________

iii. Neither Agree nor Disagree ________

99

iv. Disagree ________

v. Strongly Disagree ________

d) Trading art funds publicly through shares / mutual funds is a lucrative option to explore in the future.

i. Strongly Agree ________

ii. Agree ________

iii. Neither Agree nor Disagree ________

iv. Disagree ________

v. Strongly Disagree ________

Art Market Situation in India

How would you describe the scenario of the art market (painting) in India in the next twelve months terms of:

a) Supply / Output - To rise/ To Remain Stable / To Fall / Can’t Say

b) Sales level – To rise/ To Remain Stable / To Fall / Can’t Say

c) Average return on investment – To rise/ To Remain Stable / To Fall / Can’t Say

100

d) Art Exports – To rise/ To Remain Stable / To Fall / Can’t Say

e) Online Auctioning Activity – To rise/ To Remain Stable / To Fall / Can’t Say

f) Art Investment Fund Activity – To rise/ To Remain Stable / To Fall / Can’t Say

What are the mistakes commonly made by Indian investors in art market that lead to an unsuccessful investment or negative returns?

a) Investing without adequate knowledge of current trends in art market ______

b) Anticipation of quick returns ______

c) Lack of importance given to relationship-building with major players in art market ______

d) Ignorance towards factors affecting art evaluation ______

e) Mistaking decorative art for investment art ______

f) Poor maintenance of painting ______

g) Selling at the wrong time ______

h) Any other: ________________________________________________________________________

________________________________________________________________________

________________________________________________________________________

Based on your experience as a collector in the art market, which factors do you feel deter Indian investors from considering art with investment motive?

101

a) Conservative attitudes towards investment ________

b) Illiquid nature of art investments (i.e. cannot be sold /exchanged

easily without substantial loss in value)

________

c) Volatility of art market in India ________

d) Lack of investment avenues for art ________

e) Lack of obtainable information about Indian art market ________

f) Level of knowledge required for investing in art ________

g) High level of transaction costs ________

h) High level of maintenance required ________

i) Any other _______________________________________________________________

102

How would you rate the overall level of interest among Barodians in art?

I. Very Low II. LowIII. MediumIV. High V. Very High

How would you rate the current level of demand for paintings in Vadodara among individual buyers?

i. Very Low ________

ii. Low ________

iii. Medium ________

iv. High ________

v. Very High ________

What is the level of awareness of art as an investment in Vadodara?

103

i. Very low ________

ii. Low ________

iii. Medium ________

iv. High ________

v. Very High ________

1) What according to you can raise the level of demand in investment art among Barodians?

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

______________________________________________________________________________

Lastly, give us your recommendations on the following keeping in viewpoint of entry –level investment in paintings:

a) Vadodara Based Artists

________________________________________________________________________

104

b) Artists based outside Vadodara

________________________________________________________________________

c) Auction Houses (even online auction sites)

________________________________________________________________________

d) Art Advisors (preferably in Vadodara)

________________________________________________________________________

e) Art Galleries (preferably in Vadodara)

________________________________________________________________________

f) Art Dealers

________________________________________________________________________

g) Art Museums

________________________________________________________________________

2) Lastly, what would be your first advice to an investor in the art market?

105

________________________________________________________________________

_______________________________________________________________________________

A) For Interview Schedule Conducted with Affluent Households (Individual Investors)

Art As An Investment? Examining Factors Influencing Purchase Motives

Towards Paintings Among Affluent Individuals in Vadodara

Please enter your personal details below

o Name: __________________________________________________________________

o Age Group: 20–30 years / 30–40 years / 40 – 50 years / 50 and above

106

o Educational Qualification:

12th Grade ___________ (Science / Commerce / Arts and Humanities / Any Other)

Graduate: ___________ Area of Specialization: ______________________________

Post-Graduate: ___________ Area of Specialization: __________________________

Doctorate: ___________ Area of Specialization: __________________________

o Occupation: _____________________________________________________________

Designation: _______________________________________________________

o Yearly Household Income: Less Than 20 Lakh / 20 Lakh – 1 Crore / 1 Crore – 10 Crore / 10 Crore and More 1) How interested are you in fine arts (painting/sculpture/

photography)?

To a Great Extent  / Somewhat / Very Little / Not at All

2) How strong do you believe the focus on fine arts (painting/sculpture/ photography ) was in:

School: Very Low / Low / Medium / High / Very High

107

College: Very Low / Low / Medium / High / Very High

3) Were you taught about Indian art / Indian artists / art movements in India in your school days?

a) Yes, a great deal of it. ________

(in-depth knowledge about Indian artists (contemporary/modern/premodern) and their works, different style and forms of art, art movements, along with art practicals, trips to art museums/galleries and seminars by prominent Indian artists)

b) Yes, to an extent. ________

(only in-depth theoretical knowledge on prominent Indian artists, some art styles and practical sessions in class)

c) Maybe a little bit. ________

(only a theoretical overview of Indian art artists, art movements and practices)

d) Not much. ________

(only passing references to Indian artists, art movements while discussing examples)

e) Not at all ________

(general art classes conducted with no discussions on Indian art, artists, art styles and movements)

108

4) Have you taken fine arts classes (in painting/ sculpture / photography) outside school or college?

Yes

No

5) If Yes, for how long?

Less than a year / About a year or two/ 2 to 5 years / For more than 5 years

6) Do you think fine arts is a viable career option in today’s world?

Definitely / Very Probably / Probably / Possibly / Probably Not / Very Probably Not

7) Tell us how often have you done the following in the past year –

Activity Frequency

1) Visited local/national art exhibitions

Very Often / Occasionally / Rarely / Not once

2) Visited local / national art exhibitions

Very Often / Occasionally / Rarely / Not once

3) Visited art galleries (within or outside town)

Very Often / Occasionally / Rarely / Not once

4) Visited art museums Very Often / Occasionally / Rarely / Not once

109

8) How much have you invested in paintings in the past three years?

Painting Value No of Paintings Purchased

Between Rs 1000 and Rs 10000

Between Rs. 10000 and Rs. 50000

Between Rs. 50000 and Rs. 100000

Between Rs. 100000 and Rs. 1000000

More than Rs. 100000

9) Rate the strength of your motives for purchasing paintings:

a) For the simple reason that I love art ( Low / Average / High )

b) I want to impress others ( Low / Average / High )

c) Those within my social circles purchase art. ( Low / Average / High )

d) I want to get profitable returns from art investments by selling them at the right time

110

( Low / Average / High )

e) I want to diversify investment portfolio ( Low / Average / High )

f) I see it as a long-term investment for my children ( Low / Average / High )

g) Any other:

________________________________________________________________________10) Which sources have you consulted while buying paintings? Rate

them based on your level of satisfaction you got from the advice provided by them.

Source Whether Consulte

d ?

(Place a tick mark

in case you

have)

Level of Satisfaction

a) Art Curator (Museum)

Very Low / Low / Average / High / Very High

b) Art Specialist / Art Advisor

Very Low / Low / Average / High / Very High

c) Art Collector Very Low / Low / Average / High / Very High

Very Low / Low / Average / High / Very

111

d) Artists

High

e) Any Other : (please specify)

____________________________

____________________________

Very Low / Low / Average / High / Very High

11) Do you ask your friends and neighbors for advice while purchasing paintings?

Always  / Usually  / About Half the Time / Seldom  / Never

12) How would you rate their advice?

Always Helpful / Helpful Most of the Times / Helpful Sometimes /

Rarely Helpful / Never Helpful

13) With respect to art magazines, tell us if you have:Name of the Magazine

Heard about It Read It Subscribed To It

1) Art IndiaMagazine

2) Art & Deal Magazine

3) Art Illustrated Magazine

4) TAKE On

112

Art Magazine

14) Rank the following according to preference as an asset with investment motive: (1 – First Preference… 5 – Last Preference)

Asset Class Preference as Investment

Have you invested in it?

1) Stocks and Shares Yes / No

2) Money Market Funds(commercial paper) Yes / No

3) Real Estate Yes / No

4) Precious Metal (Gold) Yes / No

5) Art and Antiques Yes / No

15) Which factors do you think would increase your comfort level in investing in art?

i. Your earnings were higher than your current income.

Definitely___________ Very Probably  ___________ Probably  ___________ Possibly ___________

113

Probably Not ___________ Very Probably Not ___________

ii. You had more knowledge on the current situations in the art market.

Definitely  ___________ Very Probably  ___________ Probably ___________ Possibly  ___________ Probably Not ___________ Very Probably Not ___________

iii. You had better and easier to sources that could help you invest in art.

Definitely  ___________ Very Probably  ___________ Probably  ___________ Possibly ___________ Probably Not ___________ Very Probably Not ___________

iv. You had better and easier to sources that could help you invest in art.

Definitely  ___________ Very Probably  ___________ Probably ___________ Possibly ___________ Probably Not ___________

114

Very Probably Not ___________

v. You had better knowledge as an investor about investments.

Definitely  ___________ Very Probably  ___________ Probably  ___________ Possibly  ___________ Probably Not ___________ Very Probably Not ___________

vi. You had better knowledge as an investor about investments.

Definitely ___________  Very Probably  ___________ Probably  ___________ Possibly  ___________ Probably Not ___________ Very Probably Not ___________

vii. You had better knowledge as an investor about investments.

Definitely  ___________ Very Probably  ___________ Probably ___________ Possibly  ___________ Probably Not ___________

115

Very Probably Not ___________

viii. People in your social circles invested more in art.

Definitely  ___________ Very Probably  ___________ Probably  ___________ Possibly ___________ Probably Not ___________ Very Probably Not ___________

ix. You had a better appreciation for art itself.

Definitely ___________  Very Probably  ___________ Probably ___________ Possibly ___________ Probably Not ___________ Very Probably Not___________

Thank You For Your Cooperation

APPENDIX - BIBLIOGRAPHY

Books:

1) 108 Investment Mantras Subhash Lakhotias

2) Robertson, Iain, The Art Business. Rontledge

116

Articles:

1) ‘A New Alternative Investment Vehicle? An analysis of Art as an investment opportunity for Institutional investors’ - Authors: Irena Chloé Angelov, Anna Fischer : Date of Submission: November, 11th, 2008 Copenhagen Business School

2) On the rate of return in the art market: Survey and evaluation Bruno S. Frey, Reiner Eichenberger *European Economic Review 39

3) Robertson, Iain “Its all in the sway (silver, wine, art, gold)”. Issue 41 1st Quarter 2012 26-27. Print

4) Art Market India Report

5) Epstein, J. L. (2001). Teachers Involve Parents in Schoolwork (TIPS): Volunteers in social studies and art. In J. L. Epstein (Ed.), School, family, and community partnerships: Preparing educators and improving schools (pp. 543-62). Boulder, CO: Westview Press.

6) Forbes: Could Fine Art And Collectibles Become A New Asset Class? Kathryn Tully , December 10.2012

Newspapers:

117

1) How the Art Market Thrives on Inequality: nytimes.com May 30, 2012 Adam Davidson

2) Sahijwala, Anishaa “Business of Art”. The Times of India 17 Feb, 2014: 1, Print.

Websites:

1) http://press.princeton.edu/chapters/i9316.pdf2) Investing In Fine Art Can Mean Pretty Profits: Shelly K. Schwartz

Monday 18 October 2010 Special to CNBC.com

3) http://investnart.blogspot.in/4) http://forbesindia.com/article/real-issue/osians-art-fund-the-broken-

paddle/9532/0#ixzz30Lryzv365) http://psychology.about.com/od/cognitivepsychology/a/left-brain-right-

brain.htm6) http://www.artindiamag.com/

7) http://www.ourvadodara.com/seiko/

8) http://www.forbes.com/sites/kathryntully/2012/09/14/eight-tips-for-would-be-art-investors/

9) http://www.artnet.com/magazineus/features/grant/fine-art-funds-11-22-11.asp

10) http://www.artindiamag.com/quarter_02_02_14/about.html11) http://artanddeal.in/cms/?page_id=212) http://takeonartmagazine.com/about/13) http://takeonartmagazine.com/about/14) http://www.gbtate.com/appraisalonline.html

118

15) http://www.saveyourstuff.com/blog/save-your-stuff/what-is-the-best-temperature-for-artwork-3-tips-to-protect/

16) http://www.gbtate.com/appraisalonline.html

119