Investing in artwork? Check out this IIM Ahmedabad index

Is there a technique to monitor how artworks of various artists fare at auctions and use that to chart pricing developments in Indian artwork market? A brand new index, launched not too long ago by the Indian Institute of Management, Ahmedabad, or IIMA, goals to do precisely that. In December 2021, IIMA and Mumbai-based Aura Art determined to collaborate on creating IAIAI (IIMA-AuraArt Indian Art Index).

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The artwork of monitoring indian artwork work

The first batch of knowledge shared by Aura Art included public sale outcomes of almost 9,000 Indian artworks throughout 11 public sale homes all over the world. The transaction worth of those artworks between 1 April 2001 and 30 June 2022 is estimated to be round ₹4,500 crore.

Scope of the index

Any index ought to be capable of broadly signify the market by which it’s working and its constituents ought to have some liquidity for pricing variability. As the artwork market just isn’t so liquid, India’s prime 25 artists which have seen the best variety of works auctioned in final 21 years, had been included because the index’s constituents. At the higher-end of the spectrum, an artist has had as many as 9,000 observations; on the lower-end, there are 100 observations. These observations are principally the costs at which these artists’ work are bought at totally different auctions.

Besides monitoring costs, the index additionally adjusts for the impression on pricing of various variables comparable to medium (oil, gouache, watercolour, and many others.), artwork topic, seasonality, artwork title, fashion (impressionist, summary life like), physicality (which is the most important issue), artist id, public sale home, advertising and marketing, and many others.

Professor Prashant Das of IIMA explains, “Suppose, we’re speaking about Husain who all the time does olive oil, after which another artist who all the time does watercolour. When we evaluate their works, we don’t know whether or not it’s the artist impact or the medium impact. Our index methodology separates these two and we’re capable of flesh out the artist impact from the medium impact. And then we do a rating of pure-play artist impact. Had Husain achieved a watercolor portray with related traits, would his portray be bought at increased or lower cost?”

“Using our database models, we are able to explain 80-83% of what influences the pricing of the top 25 artists in India,” Das provides. The IAIAI might be up to date on a quarterly foundation and introduced semi-annually, with free entry to the general public.

How has the index carried out?

The IAIAI has delivered 17% compounded annualized returns between 1 April 2001 and 30 June 2022, whereas Nifty 50 delivered 13% compounded annualized returns in the identical interval.

However, IAIAI noticed heightened volatility throughout this era. The index noticed a robust bull run ranging from 2002-03 similar to all different asset courses in India. This was additionally the time when the public sale market got here into play in India. Over subsequent 5-6 years, the IAIAI delivered compounded annualized returns of 80%. But then, with the 2008 monetary disaster, there was additionally an enormous meltdown on this artwork index.

Rishiraj Sethi, director, Aura Art Development, the height in Indian artwork market was really seen earlier. “The IAIAI’s peak was in 2006. This is as a result of round this time, artwork funds had began to return into the market and deployed giant sums. They would have raised and deployed round ₹250 crore, which might have been 25% of all the Indian artwork market dimension again then.”

In 2009-13, the IAIAI tested its bottoms. This was also the time when these art funds were looking for exit, before winding up eventually.

One such example is Osian Art Fund, which was a close-ended scheme that pooled funds from investors with the objective of generating income and capital growth from investing in art works. However, as the art market collapsed, it was not able to meet its investor obligation. The fund was not registered with the capital market regulator Securities and Exchange Board of India (Sebi). Eventually, Sebi had to intervene and finally order wind-up of the scheme.

Global art indices

Globally, there are already a few art indices,including one that uses artificial intelligence. Artnet is the oldest art index provider. Founded in 1989, the company offers several art indices using its extensive database of more than 1,800 auction houses, going back to 1985.

The Mei Moses is art index provider, which is now owned by Sotheby’s. The Mei Moses indices were inspired by Home Price Indices, which used repeat sales of single-family homes. The index creators – Professors Jianping Mei and Michael Moses, were of the view that repeat sales were an appropriate way to track price trends of unique objects such as art. The reasoning: such sales expressed price changes of specific underlying assets better, than average or median of the market. It was important to look at such methodology to avoid skewing the data.

With the help of artificial intelligence (AI) Wondeur looks at pricing patterns for 240,000 artists born after 1900s.

The future

Family offices and wealth management firms can use this index as a point of reference to interpret the current phase of the Indian art market, whether there is a bull run or a consolidation phase.

IIMA’s Das says art funds can possibly use this index in future to serve as a benchmark. If there is more institutional participation through alternate investment funds (AIFs) or other investment vehicles, it can make the art market more liquid.

Even globally, there aren’t very large funds investing in art, although there are a few examples. The British Railway’s pension fund has an allocation for physical art.

“If there are funds, then investors can take exposure to private equity, rather than art itself, because this asset class requires certain specialization for its upkeep and maintenance,” Das factors out.

However, after the Osian Art Fund episode, Sebi would want to make sure that there are enough and acceptable laws to control artwork funds.

Separately, if you wish to put money into artworks, do word that short-term capital features might be taxed at your income-tax slab fee and long-term capital features, which is relevant after three years, might be taxed on the fee of 20%.

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