Investments in the domestic capital market through participatory notes (P-notes) slumped to a five year low of Rs 1.35 lakh crore in July-end amid stringent norms put in place by Sebi. The total value of P-notes investments in Indian markets — equity, debt and derivatives — declined to Rs 1,35,297 crore at July-end from Rs 1,65,241 crore at the end of June, according to Sebi data. This was the lowest level since July 2012 when the cumulative value of such investments stood at Rs 1,29,586 crore.
P-notes are issued by registered foreign portfolio investors to overseas players who wish to be a part of the Indian stock markets without registering themselves directly. They however need to go through a proper due diligence process. Of the total investments in July, P-note holdings in equities were at Rs 1 lakh crore and the remaining were in debt and derivatives markets. Besides, the quantum of FPI investments via P-notes fell to 4.4 per cent in July from 5.7 per cent in the preceding month. In July, markets regulator Sebi had notified stricter P- notes norms stipulating a fee of USD 1,000 that would be levied on each instrument to check any misuse for channelising black money.
Also, the regulator prohibited FPIs from issuing such notes where the underlying asset is a derivative, except those which are used for hedging purposes. The move follows after the board of Securities and Exchange Board of India (Sebi) in June approved a proposal in this regard. These measures follow a slew of other steps taken by the regulator in the recent past. In April, Sebi had barred resident Indians, NRIs and entities owned by them from making investment through P-notes. The decision was a part of efforts to strengthen the regulatory framework for P-notes, which have been long seen as being possibly misused for routing of black money from abroad.