Investing in Art? Check out this IIM Ahmedabad Index

Is there any way to track how artworks by different artists sell at auctions and use this to chart pricing trends in the Indian art market? A new index launched recently by the Indian Institute of Management, Ahmedabad, or IIMA, aims to do exactly that. In December 2021, IIMA and Mumbai-based Aura Art decided to collaborate on the development of IAIAI (IIMA-AuraArt Indian Art Index).

The first batch of data shared by Aura Art included auction results of nearly 9,000 Indian artworks across 11 auction houses around the world. Between 1 April 2001 to 30 June 2022 the transaction value of these artefacts is estimated to be approx. 4,500 crores.

index scope

Any index should be able to broadly represent the market it is operating in and its constituents should have some liquidity to account for pricing variability. As the art market is not that liquid, the top 25 artists from India who have seen the most works auctioned over the past 21 years were included as components of the index. At the high end of the spectrum, an artist has more than 9,000 observations; At the lower end, there are 100 observations. These observations are basically the prices at which the work of these artists are sold at various auctions.

In addition to tracking prices, the index factors in the pricing of various variables such as medium (oil, gouache, watercolor, etc.), art subject, seasonality, art title, style (impressionist, abstract realist), materiality (which is adjusts for. biggest factor), artist recognition, auction house, marketing, etc.

IIMA Professor Prashant Das explains, “Suppose, we are talking about Hussain who always does olive oil, and then some other artist who always does watercolours. When we compare their works, So we don’t know if it’s an artist effect or a medium effect. Our indexing methodology separates these two and we’re able to remove the artist effect from the medium effect. And then we do a ranking of pure-play artist effects. If Had Hussain made a watercolor painting with similar characteristics, would his painting have sold for more or less?”

“Using our database model, we have been able to explain 80-83% of the pricing influences of the top 25 artists in India,” says Das. for the people.

How has the index performed?

IAIAI has given 17% compound annual return between April 1, 2001 and June 30, 2022, while Nifty 50 has given 13% compound annual return over the same period.

However, the IAIAI witnessed extreme volatility during this period. The index started a strong bull run from 2002-03, like all other asset classes in India. This was also the time when the auction market came into vogue in India. In the next 5-6 years, IAIAI gave a compounded annual return of 80%. But then, with the financial crisis of 2008, came a severe downturn in this art index.

Rishiraj Sethi, director of Aura Art Development, said the peak in the Indian art market was indeed seen earlier. “The pinnacle of IAIAI was in 2006. This is because around this time, art funds started coming into the market and investing large amounts. they pick up and deploy around 250 crores, which would have been 25% of the size of the entire Indian art market then.”

In 2009-13, IAIAI tested its bottoms. This was also the time when these art funds were looking for exits before they finally closed.

One such example is the Ocean Art Fund, which was a closed-ended scheme that raised money from investors with the objective of income and capital appreciation from investments in works of art. However, as the art market collapsed, he was not able to meet his 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 closure of the scheme.

global art index

Globally, there are already some art indexes, including one that uses artificial intelligence. Artnet is the oldest art index provider. Established in 1989, the company offers a range of art indexes since 1985 using its extensive database of over 1,800 auction houses.

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

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

Future

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

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

Even globally, there are not very large funds investing in the arts, although there are a few examples. The British Railways Pension Fund has an allocation for physical art.

Das explains, “If there are funds, investors can invest in private equity rather than the art itself, as this asset class requires some expertise to maintain and maintain it.”

However, after the Ocean Art Fund episode, SEBI will need to ensure that there are adequate and proper regulations in place to govern art funds.

Separately, if you want to invest in artefacts, note that short-term capital gains will be taxed at your income tax slab rate and long-term capital gains, applicable after three years, will be taxed at 20% . ,