The share of foreign portfolio investments (FPI) through participatory notes (P-notes) in domestic capital markets has declined to nine-year low of Rs 1 lakh crore at the end of April, due to tough rules put in place by Securities and Exchange Board of India (SEBI) to check the misuse of these instruments. This is the lowest level since June 2009 when the cumulative value of such investments stood at Rs 97,885 crore. According to SEBI data, total value of P-note investments in Indian markets including equity, debt and derivatives, at April end slipped to Rs 100,245 crore from Rs 106,403 crore at the end of March and Rs 106,760 crore in February.
Of the total, P-note holdings in equities at April-end were at Rs 72,321 crore, while in debts and derivatives were at Rs 27,274 crore and Rs 3,748 crore respectively. The quantum of foreign portfolio investors' (FPIs) investments via P-notes dropped to 3 percent during the period under review from 3.4 percent in the preceding month. P-notes are issued by registered 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.
SEBI had notified stricter norms stipulating a fee of $1,000 on each instrument to check any misuse for channelising black money. It 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 2017, SEBI had barred resident Indians, NRIs and entities owned by them from making investment through P- notes.