Project

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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)

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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!
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.

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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

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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.
Mr. Latish Kapadi Mr. Sashank Kini
Guide Research Scholar
Place: Vadodara
Date: 07/05/2014.

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LETTER OF SUBMISSION
From: Mr. Sashank Kini
Roll No. M-18
T.Y.B.B.A. 6th
Semester,
B.B.A. Program
Faculty of Commerce
The M.S.University of Baroda
Vadodara (Gujarat) 390002
Dt.: 07/05/2014
To,
The Registrar (Examination)
The M.S.University of Baroda-390002
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

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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.
Place: Vadodara Mr. SASHANK KINI
Date: 07/05/2014 T.Y.B.B.A. 6th
Semester,
Specialization in Marketing Management

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TABLE OF CONTENTS
1. INTRODUCTION 9
2. LITERATUREREVIEW 13
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 RISKSOF ART MARKET 36

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10. INDIAN ART MARKET 42
11 RESEARCH OBJECTIVES 44
12 FINDINGS AND RECOMMENDATIONS OF IN-
DEPTH INTERVIEWS
45
13 FINDINGS FROM PERSONAL INTERVIEWS
(QUESTIONNAIRE)
70
14 APPENDIXQUESTIONNAIRES 72
15 APPENDIXBIBLIOGRAPHY 96

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INTRODUCTION
A 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, 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 Investment
Term Liquidity Investment Types
Traditional Alternative
Short
Liquid Cash (most liquid) Precious Metal (e.g. Gold)
Bond (highly liquid)
Money Market Funds
Money Market Accounts
Stocks and Shares
Commodities
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 Art
Antiques
Forestry (medium term-long
term)
Film production
Hedge Fund
Stamps
Venture Capital

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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. .
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.

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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.
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.

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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 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”.

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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 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 dis-tinction 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 cul-ture 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
pa-tronage 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)globalart 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
served: an up-wardly mobile elite with money to burn. These include an extended period of

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corporate profitability and equity market appreciation, dating to the mid-1960s, that has encouraged
large-scale 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 competitivethrill 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 invest-ment conscious, both the scale and ambition 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 public-sector arts funding and the acceleration of policy-led 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.

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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 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

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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 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.

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TYPES OF ART
1) Old Masters:
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.

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3) Contemporary Art
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.

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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.
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

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

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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
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

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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 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.
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

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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.

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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 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 investmentlosses
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.

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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
 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 dot-com 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,

26
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 career-oriented 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.

27
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 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 process of returning money to investors. Osian’s case is elaborated in the
chapter ‘Findings of In-Depth Interviews’.

28
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
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

29
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
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.

30
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
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.

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VALUATION OF PAINTING
To 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.
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.

32
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
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.

33
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
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

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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 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.

35
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 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

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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
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

37
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,
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.

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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.
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

39
actual market value might significantly deviate.
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’.

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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. Liquiditycan 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
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

41
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.

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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.
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

43
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 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’.

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RESEARCH OBJECTIVES
The main objectives of the research are as follows:
a) To examine factors motives towards paintings among affluent individuals in Vadodara
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

45
Findings And Recommendations of In-Depth
Interviews
Originally, Ihad planned to conduct an interview schedule with art gallery owners, art collectors, art
fund managers as well as art auctioneers, fine art 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.
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

46
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 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.

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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 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.

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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. 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

49
basically ‘sensitizing minds who would otherwise take 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 intellectualcapacitiesthat widens a human’s understanding level 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,

50
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 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

51
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 greater
insight and sophistication than they had done before.” The evaluation concluded that the
TIPS program is a “useful tool for 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 even if it does, it may not yield the ‘psychic costs’
that’s an important motive that affects purchase of art.

52
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 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

53
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 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.

54
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
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

55
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. 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.

56
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 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.

57
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.
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.

58
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 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.

59
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 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

60
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 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.”

61
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.
“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,

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