Indian five hundred rupee banknotes. (Photographer: Dhiraj Singh/Bloomberg)

P-Note Investments Hit 4-Month High In March

Investments in domestic capital markets via participatory notes (P-notes) have surprisingly surged to a four-month high of Rs 1.78 lakh crore at the end of March despite stringent norms put in place by market regulator Securities and Exchange Board of India (SEBI) to curb inflow of illicit funds.

P-notes are issued by registered foreign portfolio investors to overseas investors 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. According to SEBI data, total value of P-note investments in Indian markets – equity, debt and derivatives – increased to 1,78,437 crore at March-end, from Rs 1,70,191 crore at the end of February.

Prior to that, the total investment value through P-notes stood at Rs 1.75 lakh crore in January-end and Rs 1.57 lakh crore in December-end.

In March, investments through the route had touched the highest level since November, when the cumulative value of such investments stood at 1,79,648 crore.

Of the total, P-note holdings in equities were at Rs 1.12 lakh crore at March-end and the remaining were in debt and derivatives markets.

The quantum of FPI investments via P-notes remain unchanged at 6.6 percent in March.

In February, markets regulator SEBI had said the steps taken by it on P-notes are "sufficient enough" to address the concerns of the Special Investigation Team (SIT) on black money, but the regulator is open to further suggestions.

It had asserted that consistent tightening of norms has made these instruments less attractive.

The SEBI board is expected to further tighten the norm next week by barring resident Indians, NRIs and entities owned by them and from investing via P-notes in a move to curb possible round tripping.

The SIT on black money, set up by the Supreme Court, had recommended a slew of measures including the need for SEBI to come up with stricter regulations on P-notes, which are often viewed as a route for channelising illicit funds.