Investments via participatory notes in the Indian capital market climbed to Rs 84,647 crore till August-end, making it the first rise in 10 months.

Participatory notes (P-notes) are issued by registered foreign portfolio investors (FPIs) to overseas players who wish to be part of the Indian stock market without registering themselves directly. They, however, need to go through due diligence.

According to the Securities Exchange Board of India (SEBI) data, the total value of P-note investments in the Indian market - equity, debt, and derivatives - rose to Rs 84,647 crore till August-end from Rs 80,341 crore clocked by the end of July. Prior to this, an increase in investment was seen in October 2017, when the cumulative value of such fund infusion rose to Rs 1,31,006 crore from Rs 1,22,684 crore in September-end.

Of the total investments made last month, P-note holdings in equities stood at Rs 66,233 crore and the remaining in debt and derivatives markets. Besides, the quantum of FPI investments via P-notes rose to 2.5 per cent during the period under review from 2.4 per cent in the preceding month.

Before the rise, P-note investments were on a decline since June last year and hit an over eight-year low in September. However, these investments rose slightly in October but fell again in November and the trend continued till July this year.

In July this year, P-note investments had touched the lowest level since April 2009 when the cumulative value of such investments stood at Rs 72,314 crore. The decline in investment 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 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.

Last month, SEBI issued revised KYC norms for FPIs, wherein resident as well as non-resident Indians have been permitted to hold non-controlling stake in such entities. These norms have been put in place weeks after a panel suggested various changes to the guidelines proposed earlier, amid concerns in certain quarters that overseas funds might face difficulties in ensuring compliance.

Non-resident Indians, overseas citizens of India and resident Indians have been permitted to hold a non-controlling stake in FPIs. There would also be no restriction on them to manage the non-investing FPIs SEBI-registered offshore funds as well as registered investment managers.

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