P-Note investments reach 8-month high of $32 bn

The foreign investments into Indian markets through 'Participatory Notes', a preferred route for HNIs and hedge funds from abroad, rose to an eight -month high of Rs 1,75,829 crore (about $32 billion) in October, as various reform measures helped attract overseas investors.

As per the latest data released by market regulator Sebi, the total value of P-Note investments in Indian markets (equity, debt and derivatives) at the end of October rose to the highest level since February, when cumulative value of such investments stood at Rs 183,151 crore.

The P-Notes, mostly used by overseas HNIs (High Networth Individuals), hedge funds and other foreign institutions, allow them to invest into Indian markets through already registered FIIs, while saving on time and costs associated with direct registrations.

Besides, value of P-Notes issued with derivatives as underlying, was at a Rs 95,536 crore at the end of October.

The quantum of FII investments through these P-Notes also rose to 14.4%, up from 12% in the previous month, the highest since 15% in March this year.

Till a few year-ago, the P-Notes used to account for more than 50% of total FII investments, but their share has fallen after Sebi tightened its disclosure and other regulations for such investments.

According to market analysts, overseas entities have been hugely investing in the Indian market in the past two months on fresh initiatives taken by the government on policy reforms.

The P-Note investments were on a steep uptrend this year till mid-March, but started declining sharply after the government in its Union Budget proposed new taxation regime of General Anti-Avoidance Rule (GAAR) and certain retrospective amendments for taxing offshore transactions.

The PNs have been accounting for mostly 15-20% of total FII holdings in India since 2009, while it used to be much higher, in the range of 25-40% in 2008. However, it was as high as over 50% at the peak of Indian stock market bull run during a few months in 2007.