P-note investments dip to nearly 9-yr low at Rs 1.06 lakh cr

Investments through participatory notes (P-notes) plunged to nearly nine-year low of Rs 1.06 lakh crore in the capital market at March-end amid stringent norms put in place by the regulator Sebi to check misuse of these instruments. P-notes are issued by registered foreign portfolio investors to overseas investors who wish to be part of Indian stock markets without registering themselves directly. They, however, need to go through a proper 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 1,06,403 crore at March-end from Rs 1,06,760 crore at the end of the preceding month. Prior to that, the figure was Rs 1.19 lakh crore.

This is the lowest level since June 2009 when the cumulative value of such investments stood at Rs 97,885 crore. Of the total investments in last month, P-note holdings in equities were at Rs 73,264 crore and the remaining in debt and derivatives markets. However, the quantum of FPI investments via P-notes rose to 3.4 per cent during the period under review from 3.3 per cent in the preceding month. P-note investments were on a decline since June last year and hit an over eight-year low in September. However, these investments slightly rose in October but fell in November and the trend continued till March this year.

The decline could be attributed to several measures taken by the market watchdog to stop the misuse of the controversy-ridden participatory notes. In July 2017, Sebi notified stricter norms stipulating a fee of USD 1,000 that would be levied on each instrument to check any misuse for channelising black money. Also, the regulator prohibited FPIs from issuing such notes where the underlying asset is a derivative, except those which are used for hedging purposes.

The move was a follow-through of Sebi's board approval of a relevant proposal in June last year. These measures were an outcome of a slew of other steps taken by the regulator in the recent past. In April 2017, Sebi had barred resident Indians, NRIs and entities owned by them from making the investment through P- notes.