Investments through participatory notes (P-Notes) into India’s capital market dropped to Rs 2.75 lakh crore (about USD 43 billion) at the end of June, after touching over seven years high in the preceding month.
P-Notes, mostly used by overseas HNIs (High Net Worth Individuals), hedge funds and other foreign institutions, allow such investors to invest in Indian markets through registered foreign institutional investors (FIIs).
This saves time and cost for them, but the flip side is the route can also be used for round-tripping of black money.
According to SEBI data, total value of P-Note investment in Indian markets (equity, debt and derivatives) declined to Rs 2.75 lakh crore at June-end, from Rs 2.85 lakh crore at the end of May.
May’s figure marked the highest investment since February 2008, when the cumulative value of such investments stood at Rs 3.23 lakh crore.
The total outstanding value of P-Notes has been rising steadily since January this year and the momentum continued till March, with April registering a drop but May hitting the highest level in over seven years and again it slipped last month.
Besides, the quantum (percentage) of FII investments through P-Notes decreased to 11.5 per cent last month from 11.8 per cent in May.
Till a few years ago, P-Notes used to account for more than 50 per cent of total FII investment, but their share has fallen over the years after SEBI tightened disclosure norms and other related regulations.
As things stand, P-Notes make up mostly 15-20 per cent of the total FII investment in India since 2009. While it used to be much higher — 25 to 40 per cent — in 2008.
The reading was as high as over 50 per cent at the peak of stock market bull run in 2007.
In absolute terms, the value of P-Note 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.