Investments in the domestic capital market through participatory notes (P-notes) slumped to Rs 1.65 lakh crore in June amid stringent norms put in place by Sebi to curb the inflow of illicit funds. The total value of P-note investments in Indian markets —- equity, debt and derivatives —- declined to Rs 1,65,241 crore at June-end, according to Sebi data. It had hit 7-month high of Rs 1,80,718 crore at the end of May, highest since October last year when the cumulative value of such investments stood at Rs 1,99,987 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 last month, P-note holdings in equities were at Rs 1.07 lakh crore and the remaining were in debt and derivatives markets.
Besides, the quantum of FPI investments via P-notes fell to 5.7 per cent in June from 6.3 per cent in the preceding month. Earlier this month, 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 has prohibited FPIs from issuing such notes where the underlying asset is a derivative, except those which are used for hedging purposes. This follows after the board of Securities and Exchange Board of India (Sebi) last month approved a proposal in this regard.
The new measures follow a slew of other steps taken by the regulator in the recent past. In April, Sebi barred resident Indians, NRIs and entities owned by them from making the investment through P-notes. The decision was part of efforts to strengthen the regulatory framework for P-Notes, which has been long seen as being possibly misused for routing of black money from abroad.