Investment via P-notes rises to Rs 89,143 crore as of February-end

Investments in the Indian capital market through participatory notes (P-notes) rose to Rs 89,143 crore till the end of February, with experts saying the positive trend is likely to continue in the coming months on expectations of strong corporate earnings by India Inc which will enthuse foreign investors.

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

According to Securities and Exchange Board of India (Sebi) data, the value of P-note investments in Indian markets — equity, debt, and hybrid securities — stood at Rs 89,143 crore by the end of February, compared to Rs 87,989 crore at January-end. At the end of December 2021, the investment level was Rs 95,501 crore.

Of the total Rs 89,143 crore invested through the route till February 2022, Rs 79,747 crore was invested in equities, Rs 9,224 crore in debt, and Rs 172 crore in hybrid securities. Sonam Srivastava, founder at Wright Research, said a slight rebound is noticed from foreign investors in February as compared to January. Perhaps distinct global economical factors and the Russia-Ukraine conflict has put additional strain on the already jittery global investors.

Moreover, the Federal Reserve's decision to increase interest rates provide a good and safe opportunity for global investors to contemplate investing in US Treasury bills, she said. "The upcoming quarters for corporate Inc earnings are expected to post strong growth numbers which would instill a sense of faith among foreign investors. Also, the China + 1 sentiment would benefit the Indian manufacturing sector. Thus, in the next few months we expect PNs to grow in the range of 1.5-2 per cent each month," she added.

Divam Sharma, founder at Green Portfolio, a Sebi-registered portfolio management service provider, said the last few months have seen huge equity outflows from FPIs. The overall outflow is still around 4-5 percent of the total FPI investments in India. According to him, India's GDP growth projections still look strong, despite the inflation and commodities-related disruptions globally.

"We believe that the sell-off from FPI's in Indian equities will now witness a halt and then we should see a fresh growth in FPI AUM considering the strong fundamentals of the Indian economy," Sharma added. In contrast to the P-notes investment, the assets under the custody of FPIs declined to Rs 49.75 lakh crore in February-end from Rs 52.12 lakh crore in January-end.