CRISIL has assigned a CRISIL IPO Grade “4/5″ (pronounced ‘four on five’) to the proposed initial public offer of Edelweiss Capital Ltd (ECL). This grade indicates that the fundamentals of the issue are above average, relative to other listed equity securities in India.

The grading reflects the company management’s ability as seen in its success in building one of the largest institutional equities derivatives desks in India. It also factors the company’s strategy of supporting its institutional equities broking and investment banking businesses through breadth of research coverage and its strength in arbitrage trading on its proprietary book.

The grading takes into account the company’s strong business relationships with foreign institutional investors (FIIs) in the institutional equities broking segment and its sound corporate governance structure. The grading is tempered by the fact that the company’s earnings continue to be dependent on their skills in identifying arbitrage opportunities in its proprietary trading business, where yields have fallen over the years but have remained reasonably stable over the last 18 months.

Further, the grading reflects the fact that ECL has created a good position in the mid-size space of Indian investment banking, an area with significant growth potential, but competition is expected to intensify in this space.