P-notes investment hits 5-yr high of Rs 1.04 lakh crore in May

Participatory notes (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.

Fuelled by the resilience of the Indian economy, investment in the domestic capital markets through participatory notes rose to Rs 1.04 lakh crore in May-end, the highest level in over five years. This includes the value of P-note investments in Indian equity, debt, and hybrid securities.

Also, this marks the third consecutive monthly increase in the investment level through this route, data with the Securities and Exchange Board of India (Sebi) showed. Participatory notes (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 a due diligence process. According to Sebi data, the value of P-note investments in Indian markets -- equity, debt, and hybrid securities -- stood at Rs 1,04,585 crore at the end of May, as compared to Rs 95,911 crore in April-end. According to Sebi data, the value of P-note investments in Indian markets -- equity, debt, and hybrid securities -- stood at Rs 1,04,585 crore at the end of May, as compared to Rs 95,911 crore in April-end.

In comparison, the investment through the route was Rs 88,600 crore in March-end, Rs 88,398 crore in February-end and Rs 91,469 crore in January-end. The flow in the month of May was the highest level since March 2018, when investment through the route stood at Rs 1.06 lakh crore.

The growth in P-notes generally aligns with the trend in FPI flows, when there is a global risk to the environment, investment through this route increases and vice-versa. Market analysts said one of the major drivers behind the growth in P-notes investment is the resilience of the Indian economy amid an uncertain global macro backdrop.

In addition, the slowdown in the Chinese economy has also led investors to shift their focus toward India, they added. Of the total Rs 1.04 lakh crore invested through this route till May this year, Rs 95,345 crore was invested in equities, Rs 9,034 crore in debt and Rs 205 crore in hybrid securities.

In addition, assets under custody of the FPIs grew to Rs 52.3 lakh crore in May, from Rs 50.85 lakh crore in the preceding month. Meanwhile, FPIs investment in Indian equities rose to nine months high at Rs 43,838 crore in June and Rs 3,276 crore in the debt market.