Issuances improves; more underlying assets in sight?

CARE Research has released article on principal-protected market linked debentures "The next cut: Issuances improves; more underlying assets in sight?" The research firm is of the opinion that there is a need to educate the investors on the potential of these instruments in a volatile as well as a bearish market as they provide an in built ‘stop loss’ in uncertain market environments.

Issuances of PPMLD improved in January 2013
The January 2013 month witnessed 31 issuances with the average maturity of 2.6 years v/s. 18 issuances in Dec 2012 with average maturity of 3.1 years. The number of issuances in January 2012 was 14 with the average maturity of 2.6 years. The market witnessed the issuance primarily by Edelweiss Capital Limited (ECL), Reliance Capital limited (RCL), Citicorp, Macquarie, and India Infoline Finance Limited (IIFL). CARE Research finds that ~291 PP-MLDs term sheets have been issued in the market during January 2012 to January 2013. In January 2013, ECL leads the issuance with 9 term sheets, followed by Citicorp with 8, RCL with 7, IIFL with 4 and Macquarie with 3 term sheets.

Theoreticaly in a volatile market investment sentiment turns cautious and investors seek
downside protection with respect to thier stock investment. PPMLDs by definition are the investment instruments which protect the downside risk as at least the prinicpal amount is guaranteed by this issuers while there is participation available on market movement. The principal protection is offered by entities with good credit quality with ratings in A/AA/AAA categories. CARE Research is of the opinion that there is a need to educate the investors on the potential of these instruments in a volatile as well as a bearish market as they provide an in built ‘stop loss’ in uncertain market environments.

At the time of lacklustre performance by equities, the investment sentiment in such structured products (PPMLD) turns cautious. Even with short term rallies, the demands for these structured products do not pick up as investors doubt the sustainability of rallies. "Lack of sustained performance by equity markets has led to lack of conviction by HNIs in equity market linked products. Lack of participation in alternative underlying assets such as Gold and minimum investment limit in PMS of 25 lacs has contributed to the lacklustre demand of these structures" says Mr. Arjun Reddy, Product & Advisory at Ambit Private Wealth, Ambit Holding.

Given the current uncertain economic/market scenario, investors are opting for the more simpler/time tested investment avenues, indicating weak investment confidence for innovative asset classes/products. Nevertheless, the higher risk adjusted returns on PPMLDs have been a feature of attraction amongst investors. "In volatile markets, this category of products has provided very good risk adjusted returns to clients and this performance has led to increase in investor confidence." Says Mr. Vivek Sharma, Head - Structured Products & Investment Advisory at Edelweiss Global Wealth Management Limited.

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