The structured products market in India has become very attractive in the last six months due to the lack of options in the fixed income segment, the rising interest rate in the West and the equities rally, according to According to Siddhartha Rastogi, director, Ambit Private Wealth. In the first part of an interview, Rastogi explains why structured products could benefit from the 'excitement' around the equity market in India on the back of increasing domestic inflows

"After the demonetization in the country, limited foreign money has flown into the capital markets due to expensive valuations and there has been formalization of Indian economy and the business sector," says Rastogi, adding that more and more savings are being channeled from physical into financial assets, which resulted in a strong decline in the cost of capital in the country.

"Structured products got significant traction in India in the past few months because they serve as the only mechanism by which high net worth individuals could enhance their returns in the country. Since the cost of capital has been very low recently, there aren't too many ways through which you can get yield which is more than or equal to 8.0%."

According to Rastogi, although there is no way to quantify the exact increase in demand for structured products over the past six months as there is no official entity which catalogues the issuance of such products, the sense is that "the market has jumped by 30% to 40% and there was a clear surge in the demand for structured products in India".

Rastogi says that the price-earning multiples for the Indian equity market have jumped significantly, but he doesn't expect consolidation of the equity market in the near future. "I believe there will be no price-wise correction. On the other hand, what I anticipate is time-wise correction," he says. "Therefore, the market might remain in the tight range of 7% to 10% for twelve to 18 more months until earnings catch up. We may see a 5% to 7% downward movement but it will not correct beyond 12 -15%."

Additionally, Rastogi believes that in the next six to twelve months the Sensex index won't experience massive growth which could bolster activity around structured products.

"It may have a 8 to 12% jump to 37000 on the Sensex and this 37000 on the Sensex is the 12-month target," says Rastogi. "This will definitely going to give a boost to the structured products market because people would prefer to go into equities through structured products because they would have capital guaranteed on the downside and they would have some participation on the up side. But clearly, the structured products market will be one of the biggest beneficiaries in such a situation."

Regarding the popularity of leverage and inverse products in India, Rastogi points that a significant number of investors don't use leverage because the cost of capital in the leverage market has come down to as low as 8.5% to 9%.

"Despite of that, clients are not very comfortable leveraging because from their perspective the average returns have been in the range of 10% to 12% on the capital protected side," he says. "In this case, investors would prefer to have leverage which is inbuilt so they would go for a higher participation not built itself in the structure rather than leveraging the structure."

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