Continuing their declining trend, the share of foreign portfolio investments (FPIs) in domestic capital markets through participatory notes (P-notes) has slipped over 9-year low of more than Rs 93,000 crore at the end of May, amid stringent norms put in place by Securities and Exchange Board of India (SEBI) to check the misuse of these instruments. This is the lowest level since April 2009 when the cumulative value of such investments stood at Rs 72,314 crore. According to SEBI data, total value of P-Notes investments in Indian markets including equity, debt and derivatives, at May end dropped to Rs 93,497 crore from Rs 1,00,245 crore at the end of April. Prior to that, the figure was Rs 1,06,403 crore.
Of the total, P-note holdings in equities at May-end were at Rs 70,442 crore, while in debts and derivatives were at Rs 19,532 crore and Rs 3,523 crore respectively. The quantum of FPI investments via P-notes declined to 2.9 percent during the period under review from 3 percent in the preceding month. P-notes are issued by registered foreign portfolio investors (FPIs) to overseas investors who wish to be part of the Indian stock markets without registering themselves directly. They, however, need to go through a proper due diligence process.
The fall in P-notes could be attributed to several measures taken by the market regulator to stop the misuse of the controversy-ridden participatory notes. In July 2017, SEBI had notified stricter norms stipulating a fee of $1,000 on each instrument to check any misuse for channelising black money. It had also prohibited FPIs from issuing such notes where the underlying asset is a derivative, except those which are used for hedging purposes. These measures were an outcome of a slew of other steps taken by the regulator in the recent past. In April last year, SEBI had barred resident Indians, NRIs and entities owned by them from making investment through P-notes.
