Practitioners ’view on the use of debt derivatives in India and Judgemental Bias

Corporates raise their debt capital and equity capital to finance their assets. Whether debt or equity capital, it is subject to market risks like interest rate risks, liquidity risks, Inflation risks, etc., In order to protect their assets against such risks, market participants use derivatives as a hedging instrument. But many investors look upon derivatives as unnecessary, cutting into the profits and sometimes, bringing loss to the company. Many academicians and practitioners professed that investors fear debt instruments, with derivative as more risky than debt instruments, without derivative (Koonce, et al. 2005). In a developing market like India, trading of debt derivatives is still at a nascent stage since the market participants have not gained enough confidence due to the stringent regulations relating to trading of these instruments. Therefore, this research intends to focus on the practitioners ’perspective on the use of debt derivatives under Indian capital market conditions. The findings of the study show that majority of practitioners use debt derivative for hedging and found limited usefulness in debt derivative. However, since many managers consider derivatives as a risky asset, their use of derivatives in India is at a low level. Findings of the study also hint at judgmental bias of practitioners against the use of derivatives.