Investments into Indian shares through participatory notes (P-Notes), a preferred route for HNIs and hedge funds from abroad, surged to the highest level in two and a half years at nearly Rs 1.84 lakh crore (about USD 29 billion) in October.
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According to the latest data released by the Securities and Exchange Board of India (Sebi), the total value of P-Note investments in Indian markets (equity, debt and derivatives) rose to Rs 1,83,862 crore at the end of October. This was the highest level since May 2011, when the cumulative value of such investments stood at Rs 2,11,199 crore.
At the end of September, foreign investments in Indian market through P-Notes were at Rs 1.71 lakh crore. P-Notes, mostly used by overseas HNIs (High Networth Individuals), hedge funds and other foreign institutions, allow them to invest in Indian markets through registered Foreign Institutional Investors (FIIs), while saving on time and costs associated with direct registrations.
According to market analysts, investment into equity market via P-Notes have been rising in the past few months on the back of continued global liquidity as the US Fed postponed the tapering of its USD 85 billion monthly bond buying programme to stimulate economic growth. "It can also be attributed to moderation in our current account deficit as well as policy measures taken to attract capital in order to finance the deficit," an analyst said.
Besides, the value of P-Notes issued with derivatives as underlying, stood at Rs 1.11 lakh crore at the end of October 31, 2013. The quantum of FII investments through P-Notes marginally declined to 12.98 percent in October from 13.06 percent in the previous month. Till a few years ago, P-Notes used to account for more than 50 percent of the total FII investments, but their share has fallen after Sebi tightened the disclosure norms and other regulations for such investments.
P-Notes have been accounting for mostly 15-20 percent of the total FII holdings in India since 2009, while it used to be much higher, in the range of 25-40 percent, in 2008. It was as high as over 50 per cent at the peak of Indian stock market bull run during a few months in 2007.
FIIs, the key drivers of Indian markets, pumped in around Rs 15,700 crore (USD 2.55 billion) in the Indian equity market last month. However, they withdrew over Rs 13,500 crore (USD 2.2 billion) from the debt market in October.