SEBI headquarters in Mumbai (Photographer: Santosh Verma/Bloomberg)

P-Note Investments Fall To A 9-Year Low Of Rs 1 Lakh Crore In April

Total investment via participatory notes into Indian capital markets plunged to a nearly nine-year low of Rs 1 lakh crore in April amid stringent norms put in place by the Securities and Exchange Board of India to check its misuse.

P-notes are issued by registered foreign portfolio investors (FPIs) to overseas investors who wish to be part of the Indian stock market without registering themselves directly. They need to go through a proper due diligence process.

According to Sebi data, the total value of P-note investments in Indian markets—equity, debt, and derivatives—slumped to a low of Rs 1,00,245 at April-end from Rs 1,06,403 crore at the end of the preceding month. Prior to that, the figure was Rs 1,06,760 crore.

This is the lowest level since June 2009 when the cumulative value of such investments stood at Rs 97,885 crore.

Of the total investments made last month, P-note holdings in equities were at Rs 72,321 crore and the remaining in debt and derivatives markets.

Besides, the amount of FPI investments via P-notes dropped to 3 percent during the period under review from 3.4 percent in the preceding month.

P-note investments were on a decline since June last year and hit an over eight-year low in September. These rose slightly in October but fell again in November and the trend continued until April this year.

The decline could be attributed to several measures taken by the market regulator to stop the misuse of the controversy-ridden P-notes.

In July 2017, Sebi notified stricter norms stipulating a fee of $1,000 on each instrument to check any misuse for channelising black money. It also 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 last year. These measures were an outcome of various other steps taken by the regulator in the recent past. In April last year, Sebi had barred resident Indians, NRIs, and entities owned by them from making investments through P- notes.

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