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17-Aug2018

P-notes investment declines to over 9-year low of Rs 80,341 crore at July-end

Continuing declining trend, the share of foreign portfolio investments (FPI) in domestic capital markets through participatory notes (P-notes) has declined to over nine-year low of Rs 80,341 crore at the end of July, amid stringent norms put in place by the watchdog Securities and Exchange Board of India (SEBI) to check 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-note investments in Indian markets including equity, debt and derivatives, at July end dropped to Rs 80,341 crore from Rs 83,688 crore at the end of June. Prior to that, in May the figure was Rs 93,497 crore.

Of the total, P-note holdings in equities at July-end were at Rs 60,550 crore, while in debts and derivatives were at Rs 16,219 crore and Rs 3,572 crore respectively. The quantum of FPI investments via P-notes slumped to 2.4 percent during the period under review from 2.6 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 market without registering themselves directly. They, however, need to go through due diligence process.

The decline 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. These measures were an outcome of a slew of other steps taken by the regulator in the recent past. In April last year, the SEBI had barred resident Indians, NRIs and entities owned by them from making investment through P-notes.


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