P-Notes investment hits 5-month high at Rs 2 lakh crore in August

Investments into domestic capital markets through participatory notes (P-Notes) rose to the highest level in five months at Rs 2.16 lakh crore in August.

P-Notes are typically instruments issued by registered foreign portfolio investors to overseas investors who wish to invest in Indian markets without registering themselves directly in India to save on time. But they still need to go through a proper due diligence process.

According to Sebi data, the total value of P-Notes investment in Indian markets -- equity, debt and derivatives -- increased to Rs 2,16,232 crore in August, from Rs 2,12,179 crore in July.

This was the highest level since March, when the cumulative value of such investments stood at Rs 2.23 lakh crore.

In June, investments through P-Notes had fallen to Rs 2.10 lakh crore, which was the the lowest level in nearly two years owing to a tight vigil on funds coming through this route. 

The board of Sebi, in May, tightened norms to check any misuse of controversy-ridden P-Notes by making it mandatory for users of these overseas instruments to follow Indian anti-money laundering law and report any suspicious transactions immediately.

The total value of P-Notes investment in Indian markets has fallen since October 2015 and the trend continued till February this year. However, it saw a slight increase in March but again slumped in April.

A slight uptick in the investment through P-Notes was witnessed in May, however, it again plunged to June. Further, marginal increase seen in July and August.

Of the total, P-Note holdings in equities were at Rs 1.33 lakh crore in August and the remaining holdings were in debt and derivatives markets.

The quantum of FII investments via P-Notes remain unchanged at 8.4 per cent in August-end from the preceding month.

The share of P-Notes has been falling over the years as Sebi tightened disclosure norms and other related regulations. It used to be much higher at 25-40 per cent in 2008 while the reading was as high as 55 per cent at the peak of the stock market bull run in 2007.

In absolute terms, value of P-Notes investment rose to a record Rs 4.5 lakh crore in October 2007, but dropped to Rs 3.22 lakh crore in February 2008 and Rs 60,948 crore in February 2009.