P-Note investments slump to 20-month low of Rs 2.11 lakh crore

New Delhi: Investments into India's capital markets through participatory notes (P-Notes) declined to a 20-month low of Rs 2.11 lakh crore at the end of April, with Sebi keeping a strict vigil on funds coming through this route.

Sebi, earlier this month, 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.

P-Notes are typically instruments issued by registered foreign institutional 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) declined to Rs 2,12,132 crore at the end of April, from Rs 2,23,077 crore in March-end.

This also marked the lowest level since August 2014 when the cumulative value of such investments stood at Rs 2.11 lakh crore.

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

Market experts opine that stricter set of norms will make it costlier to invest in India through P-Notes, as one of the major attractions of such instrument is cost-effectiveness and easier access.

Of the total, P-Note holdings in equities were at Rs 1.32 lakh crore at April-end and the remaining holdings were in debt and derivatives markets.

The quantum (percentage) of FII investments via P-Notes dropped to 9.3 percent in April, from 10 percent in the preceding month.

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

In absolute terms, value of P-Notes investment rose to a record of 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.