Investments in Indian capital through participatory notes (P-notes) rose to Rs 1.02 lakh crore till October-end, making it the highest level in 43 months.

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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 data, the value of P-note investments in Indian markets -- equity, debt, and hybrid securities -- was at Rs 1,02,553 crore by October end.

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This was the highest level since March 2018, when P-notes had invested to the tune of Rs 1,06,403 crore.

Abhay Agarwal, Founder and Fund Manager, Piper Serica, a Sebi-registered PMS, said that the overall investment via P notes increased by more than Rs 5,000 crore in October to hit a new high of Rs 1.02 lakh crore.

"More interestingly, the value of equity went up by almost Rs 7,000 crore while the value of debt investments fell by Rs 2,000 crore. This change in stance by FPIs is not surprising since there are expectations that long-term interest rates have hit a bottom and faced with inflationary pressures RBI will be forced to increase rates in 2022" he added.

At the end of September this year, the investment level was at 97,751 crore, Rs 97,744 crore by August end. The figure for July was revised to Rs 85,799 crore from Rs 1,01,798 crore posted earlier.

Prior to that, the investment level was at Rs 92,261 crore by June-end, Rs 89,743 crore by May-end, Rs 88,447 crore at April-end, and Rs 89,100 crore by March-end. Of the total Rs 1,02,552 crore invested through the route till October, Rs 93,213 crore was invested in equities, Rs 8,885 crore in debt, Rs 455 crore in hybrid securities. Divam Sharma, Co-founder, Green Portfolio, a Sebi-registered PMS, said the

October number reflects the continued high conviction of FPI's towards Indian equities. Further, equity inflows on November 21 (till date) are also looking robust.

"Over the last few months, the broader markets have shown some correction and have made many midcap and smallcap companies attractive on valuations. We have seen higher interest from FPI's towards the broader market participation lately," he added.

The assets under the custody of FPIs slightly dropped to Rs 53.6 lakh crore in October-end from Rs 53.71 lakh crore in September-end. Getting towards the end of the calendar year 2021, Piper Serica's Agarwal expects the FPIs to lock in gains made during the year so the secondary market will see FPIs selling to book profit during the current month and first half of December.

"At the same time, we see some buying coming in towards the year-end as allocations for the year 2022 become available and FPIs start deploying them. While most foreign brokerages deem the Indian market to be expensive on a historical P/E of 22x, we believe that the earnings estimates will get upgraded leading to regular flow from P- notes," he said.

As Indian bonds are expected to be included in the MSCI global bond index next year, there is an expectation that as much as USD 10 billion of debt flows can come through global passive bond funds reversing the trend of P-note flows into debt, he added.