P-Note investment surge is no cause for concern: SEBI chief

The rise in the value of investments via P-Notes into Indian markets in 2020 and so far this calendar year is “not substantial enough” to warrant a concern, SEBI Chairman Ajay Tyagi has said.

Participatory Notes (P-Notes), which are seen as hot money instruments, are not an issue because the inflow via this route is miniscule to the level of the net overall foreign portfolio investments into the Indian markets this fiscal, Tyagi told BusinessLine after his visit to North Block for SEBI Board meeting. He said that SEBI has already put in place a strong regulatory framework with stringent KYC norms for the FPIs.

Tyagi’s remarks on P-Notes are significant as the value of investment via this

instrument touched a 31-month high of ₹87,000 crore as of end December 2020 and this level is reportedly the highest since May 2018, which saw a peak of ₹93,497 crore. Over calendar 2020, P-Note flows saw a 30 per cent growth in value. In 2020-21, India got FPI inflows of about $35 billion, which is the highest in any financial year and the highest for any developing country.

Rise in FPI inflows

Post the recent Budget, FPI investments have increased further with overall net inflows so far in February exceeding $3 billion.

“This shows the confidence of the foreign (portfolio) investors in the Indian economy and the positivity created by the recent Budget in aiding growth momentum,” Tyagi said.

Simply put, P-Notes are receipts issued by FPIs against the money they receive for stocks purchased on behalf of clients. These instruments are not registered in India and, therefore, the real identity of the beneficiary investor is not revealed to regulatory authorities.

Since November last year, FPI flows into India have been quite robust — on the back of liquidity gush from developed nations after their central banks announced liberal Covid-19 stimulus packages — with the last two months of calendar 2020 seeing net investments of over $15 billionin Indian equity. Inflows in January 2021 were also robust with FPIs investing (net) of a little over $2 billion (about ₹15,000 crore).

KYC norms ‘in place’ for FPIs

About 10,000 FPIs are registered with SEBI, and Tyagi said that proper regulations and KYC norms are in place. FPIs’ total Assets Under Management in India currently exceed $55 billion and P-Notes account for less than 2 per cent. Nearly a third of the FPI flows into India originate from three jurisdictions — Luxembourg, Singapore and Mauritius.

It may be recalled that SEBI had in September 2019 notified new FPI regulations to ease the regime for investments by FPIs. The new rules replaced the SEBI (Foreign Portfolio Investors) Regulations, 2014.