Investments in the Indian capital market through participatory notes (P-notes) climbed to Rs 1.31 lakh crore at October-end after hitting an over eight-year low in the preceding month. 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 due diligence. The total value of P-notes investment in Indian markets —- equity, debt and derivatives —- rose to Rs 1,31,006 crore at October-end from Rs 1,22,684 crore at the end of September, according to the Sebi data. P-note investments were on a decline since June and hit over eight-year low in September. This was in view of stringent norms put in place by the Securities and Exchange Board of India (Sebi). Of the total investments in October, P-note holdings in equities were at Rs 90,161 crore and the remaining in debt and derivatives markets.
Besides, the quantum of FPI investments via P-notes remains unchanged at 4.1 per cent. Over the past few months, Sebi has taken several measures to stop the misuse of the controversy-ridden participatory notes. In July, the markets regulator notified stricter P- notes norms stipulating a fee of $1,000 that would be levied on each instrument to check any misuse for channelising black money.
Also, Sebi prohibited FPIs from issuing such notes where the underlying asset is a derivative, except those which are used for hedging purposes. The move was a follow-through of Sebi’s board approval of a relevant proposal in June. These measures were 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.