Investments in the domestic capital market through participatory notes (P-notes) plunged to seven and a half year low of Rs 1.25 lakh crore at August- end because of stringent norms put in place by regulator Sebi. The total value of P-notes investments in Indian markets — equity, debt and derivatives — slumped to Rs 1,25,037 crore at August-end after hitting a five-year low of Rs 1,35,297 crore at the end of July, according to Sebi data. This is the lowest level since February 2010, when the cumulative value of such investments stood at Rs 1,24,177 crore.
P-notes are issued by registered foreign portfolio investors to overseas players who wish to be part of the Indian stock market without registering themselves directly. They, however, need to go through proper due diligence. Of the total investments in August, P-note holdings in equities were at Rs 88,911 crore and the remaining in debt and derivatives markets. Besides, the quantum of FPI investments via P-notes fell to 4.1 per cent in August from 4.4 per cent in the preceding month.
In July, 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 is a follow-through of Sebi board approval of a relevant proposal in June. These measures are an outcome of 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 part of efforts to strengthen the regulatory framework for P-notes, which have been long seen as being possibly misused for routing black money from abroad.