Investment via P-notes hits over nine year low of Rs 79,548-cr in September

Investments in the Indian capital market through participatory notes (P-notes) hit a nearly nine-and-a-half year low of Rs 79,548 crore till September after registering a rise in such fund infusion in the preceding month.

P-notes are issued by registered foreign portfolio investors (FPIs) to overseas investors who wish to be part of the Indian stock market without registering themselves directly. They, however, need to go through due diligence process.

According to the Sebi data, total value of P-note investments in Indian markets - equity, debt, and derivatives - slumped to a low of Rs 79,548 crore till September-end from Rs 84,647 crore clocked by August-end, which was the first rise in such fund infusion in 10 months.

Prior to that, in July, the figure was Rs 80,341 crore.

As per the data, the fund inflow through P-notes in September was the lowest since April 2009, when the cumulative value of such investments stood at Rs 72,314 crore.

The decline in investment could be attributed to several measures taken by the market watchdog to stop the misuse of the controversy-ridden participatory notes, experts said.

Of the total investments made last month, P-note holdings in equities were at Rs 60,164 crore and the remaining was in debt and derivatives markets.

The quantum of FPI investments via P-notes remain unchanged at 2.5 per cent during the period under review from the preceding month.

P-note investments were on a decline since, June last year and hit an over eight-year low in September 2017. However, these investments rose slightly in October but fell again in November and the trend continued till July this year.

In August this year, investment through the route climbed but again dropped last month.

In July 2017, Sebi had notified stricter norms stipulating a fee of USD 1,000 on each instrument to check any misuse for channelising black money. It had also prohibited FPIs from issuing such notes where the underlying asset is a derivative, except those which are used for hedging purposes.

Meanwhile, in September, market regulator Sebi issued revised KYC norms for FPIs, wherein resident as well as non-resident Indians have been permitted to hold non-controlling stake in such entities.

These norms have been put in place weeks after a panel suggested various changes to the guidelines proposed earlier, amid concerns in certain quarters that overseas funds might face difficulties in ensuring compliance.

Non-resident Indians (NRIs), overseas citizens of India (OCIs) and resident Indians (RIs) have been permitted to hold non-controlling stake in FPIs.