Last month, SEBI tightened P-Note norms by levying a fee of USD 1,000 on each instrument and barred their issuance for speculative purposes to check any misuse for channelising black money.
According to the data available with Sebi, the total value of P-Notes investment in Indian markets -- equity, debt and derivatives -- fell to Rs 1,79,648 crore in November-end, from Rs 1,99,987 crore at the end of October.
Dilip Bhat says that a combination of recent reforms like the Mauritius Treaty, P-Note amendment and a possible US Fed rate hike in June have been overwhelming for the market in the short term.
Shaktikanta Das also spoke on the P-note norms that were tightened by the Sebi on Thursday. He said the market regulator‘s decision follows extensive and detailed consultations with all P-note issuers â€“ about 37 of them.
In an interview with CNBC-TV18's Kritika Saxena, Jayesh H of Juris Corp, JN Gupta, former ED of Sebi and Motilal Oswal, CMD of Motilal Oswal, discussed the development and outlined what it means for the stock market.
Acting upon recommendations of the Supreme Court-appointed Special Investigation Team on black money, Sebi tightened the due diligence requirements for issuance and transfer of p-notes and put the onus on investors to ensure the anti money laundering law compliance.
Concerned over flow of black money into stock market, the Supreme Court-appointed SIT on Friday asked regulator Sebi to compulsorily identify real owners of foreign funds coming through the controversial P-Note route and also prosecute those using equities for tax evasion
Fund flows from unregulated entities stands at USD 550 million (approximately Rs 3,400 crore), which account for a minimal 0.01 percent of total P-Note investment that amounted to over Rs 2.65 lakh crore as of October 2014.
In a bold new step for the Indian capital markets, the depository receipts scheme, 2014, permits listed and unlisted Indian companies and their security holders to issue new kinds of depository receipts.
Here onwards ODIs can be issued only to an investor who is a resident in a country which is 1) FATF compliant where the 2) securities market regulator is an IOSCO signatory 3) the central bank is a BIS member.
P-notes are often issued onwards, ostensibly to create layers so that the beneficial owners are shielded
According to market analysts, investment into the equity market via P-Notes had been rising in the past few months, mainly on account of the government's reforms agenda and a rally in the country's equity markets.
Foreign investments into Indian markets through participatory notes (P-Notes), a preferred route for HNIs and hedge funds, rose moderately to Rs 1.64 lakh crore (over USD 30 billion) in February.
Siddharth Shah of Nishith Desai Associates is positive about the clarifications that the FM has given on the P- Note. He feels it offers some respite for the market and only the issue of FII remains to be seen.
Ketan Dalal, Joint Tax Leader, PwC and Aliff Fazelbhoy, Partner - Tax, M&A and Employment, ALMT Legal think that the FM’s clarification that there will not be double taxation of both the FIIs and the P-Note holder. But it still remain unclear on the extent and the geographical limit of taxing the FIIs.
Market men say Sebi held a concall with some of these structured product sellers, but didn't offer any comments. CNBC-TV18's Latha Venkatesh reports.
It was a story of flip-flops, says Udayan Mukherjee, managing editor of CNBC-TV18, summerising the market movement for the day.
The BSE Sensex showed smart recovery on Tuesday after CNBC-TV18, citing unnamed finance ministry officials, reported the government would not target the participatory notes under its newly proposed General Anti-Avoidance Rule (GAAR).
Despite fairly tight liquidity conditions in the last couple of months, there have not been too many instances of mid and small cap companies borrowing money by pledging shares with non-banking financial companies (NBFCs).
The price pattern in many stocks indicate that some foreign players are borrowing shares held in participatory note accounts, dumping those shares, and then buying them back at lower levels.