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WINE MERCHANTS

Best cellars

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Dinner guests are always impressed when they visit the home of Vijay Lakshmi M. After all, there aren't many people in the small city of Tirupur with a certificate emblazoned with the Queen of England's royal crest. Hanging proudly among his family's degree certificates and diplomas on his dining room wall is a beautiful framed manuscript declaring : "The wine merchant to the Queen and Prince of Wales is proud to certify that Mr Lakshmi M. is the owner of four cases of 2001 Chateau Latour and three cases of Chateau Margaux."

Vijay may not strike you as a wine investor: he drinks Black Label, not Burgundy, lives in rural India, not a wine-drenched metro, and quietly runs his traditional family business like his father and grandfather before him. And yet tucked away in a cellar in southern England is Rs 18 lakh worth of the finest Bordeaux wine, of which he is proud owner.

Wine investment is taking off in India. As knowledge about wine and consumption increases, growing numbers are looking to plonk to make money as well. Of course it's the young, well-travelled elite who know their Chateau Latour from their Lafite who are leading the gang. But they're not the only ones investing. A motley crew of teetotalers, tea drinkers and the rural rich are dipping in, and drinking up the high returns. "Interest is mainly in the metros, but there are a growing number of farmers who are cash rich who are getting into this slowly," reveals fine wine investment specialist for Orcus Capital Advisors, Praveen Krishnamurthy. "Their business is traditionally agriculture, but with a large disposable income they say 'Okay, let's do this'."

But although Vijay's mates at the Rotary Club are impressed by his wine collection abroad, he still has a hard time explaining to his father the merits of spending lakhs on wine they'll never even see. "People around here tend to be traditional investors - they invest any capital back into their business, " he says. "My father invested a little in stocks, which was a bit more adventurous. And now I've taken over the reins, I thought of what could I do to expand the portfolio. There are many people in traditional businesses getting into the second generation now. When the reins are handed over, people like us are looking for new ideas for investment."

Vijay and his like could be on to something. Most investment-grade wine comes from the French region of Bordeaux. These vineyards were demarcated on the behest of Napoleon in the nineteenth century, so they can only produce a certain number of cases every year. While these chateaux have always been popular in Europe - Christie's was auctioning wine in the 1700s - the Chinese, Russian and Brazilians have developed a serious taste as well in recent years. So while returns were around 7-12 per cent in the early 1980s, they're now at 20-40 per cent a year. And every time a bottle is opened, the remaining increase in value. "It's like investing in art, if a painting was eaten every year, " explains wine investor Ishaan Ahuja. Although the quality of vintages can vary considerably, if you bank on a good year the returns can be spectacular. For example, if you were clever enough to fork out £1996 for a case of Lafite Rothschild first growth in 2000, if it's still lurking in your cellar you could be sitting on £19, 950 today.

But there's one thing sitting in the way of rural investors, explains Praveen: the wine will never appear on its owner's dining room table. Tax costs of bringing wine to India can amount to around 150 per cent, hugely outweighing any investment returns. So most Indian investors choose not to bring their wine home. Instead it remains in cellars in the UK, US and Hong Kong and is resold after a few years once the wine has appreciated in value. In the metros, this fact does not pose a problem as people are happy to view wine as an invisible investment in the same way as shares or bonds. But in rural areas, there's more of a desire to show off. Praveen has had to come up with a solution : a certificate. "People want to show that just because they're sitting in a village, they can still do something like this - they can own the best wines in a cellar in England. A personal jet on the tarmac can be seen, or a painting or a BMW in the driveway. But with wine investment, people ask me 'What am I going to show?' So I've started making certificates with crests, laminated and nicely framed."

Ishaan Ahuja and Ayesha Chenoy, founders of fine wine advisory Drayton Capital, agree that there is no barrier to wine investment. Says Ayesha: "We get around 50 emails a day from all over India asking how does it work, how do we get into wine?'. They are now developing a retail model, which should help cater to these people, so "anybody from any background can invest".

Ask Hetal Mehta her favourite wine and she'll reply hesitantly, "Errr, red?" Living in the dry state of Gujarat, in a family of teetotalers, she's never been one for a tipple and certainly couldn't tell a Shiraz from a Chardonnay. And yet late last year she went out and spent several lakhs on Bordeaux's finest. "We have a small portfolio of art which is doing very well, we've invested in real estate and are trading shares - so we thought we'd try wine. I wouldn't know if we've invested in the right kind or not, but I trust our broker."

Ayesha and Ishaan report that while most of their investors are wine buffs, 20 per cent know nothing - and actually they don't need to, they depend on the expertise and contacts of a broker. Praveen agrees: "Some investors, when I start to explain about vintages and chateaux stop me in my tracks and say 'Here's a cheque. Now what will you give me back?'" Ishaan confides he had one client from Gujarat who said: "I know nothing about wine, but I know about tea. I'd like to invest. " Despite the steep costs, there are those who do choose to bring some of their collection to India. Some buy it for birthdays, gifts for business associates, anniversaries - then it is up to the recipients whether they invest or drink. "People are buying wines for their children's birth year," says Ishaan. "Then when the kid turns 18, they either drink it or it pays for their university education."

With the appetite for wine growing at 25 per cent in India, the Chinese insatiable penchant for Lafite, returns from wines from these few vineyards are largely rewarding those who invest. And unlike bonds and shares, if it all goes wrong, they can always drink it.

(Some names changed upon request)

Reader's opinion (1)

Kalyan RamanJun 4th, 2011 at 09:12 AM

The world is flat. Is there a derivative market in wines?

 
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