India's superrich get even richer

The mansion of Mukesh Ambani, the richest man in India, is something more than the average dream house. When construction is completed next year, his home will top 570 feet – the equivalent of a 60-story skyscraper – and include a helipad, six floors of parking, and 600 servants for a family of six.

Rising from a Bombay (Mumbai) neighborhood where rents run at $2,000 per square foot, the home is a monument to the enormous wealth generated by India's stock market – and how it has created a class of Indian superrich.

Since February 2007, the value of India's stock market has doubled to 20000 points, and the biggest winners have been India's richest. Based on these gains, India's four wealthiest men are now worth more than China's 40 wealthiest combined.

It is, in part, a quirk of South Asian business practices, where even the largest multinationals remain family-run enterprises with almost all their wealth and authority residing in one man. Yet some critics say it is also the result of India's inequitable investing laws, which are forcing small investors to the fringes.

As the stock market becomes a part of Indian cultural parlance, more investors further down the economic chain are finding ways to get involved. Yet the top-heavy distribution of India's stock-market billions is further amplifying the extremes of rich and poor in a country where an estimated 400 million people – more than the population of the United States – live on less than $1 a day.

"Most of the money in the market is still principally owned by the rich and by institutional investors," says Chris Butel, chairman of Invest India Market Solutions (IIMS), a research firm that has studied Indian investment patterns.

The result, he and others say, is that a very small number of people are accumulating fantastic wealth almost overnight. Mr. Ambani's fortune, estimated at $49 billion by Forbes, is built largely on the success of the stock of his company, Reliance Industries Ltd., which runs oil rigs and supermarkets, among other things. Last year, when stocks hit 10000, his wealth was one-quarter of its current total.

Likewise, the initial public offering (IPO) of Indian real estate developer DLF Enterprises earlier this year instantly made owner Kushal Pal Singh the world's richest property entrepreneur. Forbes puts his wealth at $35 billion.

The small club of India's superrich

All told, India's 40 wealthiest businessmen are worth $351 billion, according to Forbes – easily the most in Asia. Its four richest – steel tycoon Lakshmi Mittal, Ambani, his brother Anil Ambani, and Mr. Singh – hold more than half that sum.

It is partly the legacy of out-of-date laws governing stock offerings, says Prithvi Haldea, founder of Prime Database, a Mumbai-based market-research firm. When going public, India's largest companies need to make only 10 percent of their stock available to the public. Other Asian neighbors, such as Thailand and Malaysia, usually force a company to make available 25 to 40 percent of its stock.

News reports published in June suggest that at that time, company owners held 57 percent of the shares in India's largest stock market, the Bombay Stock Exchange, known as Sensex. Domestic and foreign companies accounted for a further 30 percent, leaving the remaining scraps for small, retail investors. That, in turn, has stunted the growth of the stock market among India's middle classes, says Mr. Haldea.

Only 2 percent of Indians own stocks

It is a blow to attempts to spread the wealth being generated by India's economic boom more equitably. Shares for the top 30 companies listed on Sensex gained $219 billion from January through November. By contrast, shares for the top 30 companies listed on Wall Street accumulated only $84 billion.

Yet only 3 million Indians – from a working-age population of 321 million – hold stocks. A further 3.5 million hold stocks through mutual funds. The numbers are small, and the money invested is also modest, says Mr. Butel of IIMS.

Nevertheless, there is evidence of a gradual expansion. The growth of the Indian economy is pushing more households past the threshold where they have enough cash to invest. And the stories of Sensex riches are overcoming Indians' traditional fiscal caution. Sensex is a notoriously volatile index. Despite its upward trend, there have been dips, including Monday's 4 percent dip – the largest in four months.

"This is the heart of the Indian story," says Anu Madgazkar, an economic analyst in the Mumbai office of McKinsey and Company, a global consulting firm. "We do see this trend line going up dramatically."

There are currently 4 million households that make more than $10,000 a year – one marker of fitness for investing, she says. In the next five years, that number is expected to more than triple. IPO expert Haldea sees pent-up demand in the fact that the listing of Reliance Petroleum elicited 1.9 million applications for shares – the highest number in five years.

Such interest is no surprise to Pradeep Moule, office manager for the Vijay Kumar Stock Market Classes in Pune. "The share market used to be back page news until a few years ago," he says, sipping ginger tea in his office. "Now, it's front page news."

He offers a two-week training program to make people Sensex-literate and he is seeing new interest in new places. Statistics suggest that investors are predominately from India's six largest cities; growing numbers of people from smaller cities now have the money but are ignorant of the way the market works.

"A few years ago, the popular perception was that this was only for the highly educated, financially savvy, English-speaking elite," says Mr. Moule. "That perception is now rapidly changing."