Investments through P-notes decline to Rs 87,989 crore in January

Investments in the Indian capital market through Participatory notes (P-notes) dropped to Rs 87,989 crore at the end of January and experts believe that foreign investors will continue with their negative stance amid the Ukraine crisis.

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

According to Securities and Exchange Board of India (Sebi) data, the value of P-note investments in Indian markets -- equity, debt and hybrid securities -- was at Rs 87,989 crore by the end of January compared to Rs 95,501 crore at December-end.

At the end of November, the investment level was at Rs 94,826 crore.

Of the total Rs 87,989 crore invested through the route till January 2022, Rs 78,271 crore was invested in equities, Rs 9,485 crore in debt and Rs 232 crore in hybrid securities.

Abhay Agarwal, Founder and Fund Manager at Piper Serica, a Sebi-registered PMS, said there was a 7.8 per cent fall in value of equity P-notes in January against an almost flat return by Nifty. This is in line with expectations as foreign investors were aggressive sellers throughout January continuing the trend seen since October 2021.

After a net reduction of Rs 6,677 crore, the value of equity P-notes has fallen to Rs 78,271 crore, the level last seen in January 2021. In debt segment also, there was an almost 9 per cent reduction in the value of P-notes.

"We expect the value of P-notes to register another negative number for the month of February as FPIs continued to be aggressive sellers and the Nifty registered a 3 per cent fall for the month," he said.

With Omicron fears largely behind, investors were hopeful of a rapid recovery in the global economy. However, with the US Federal Reserve taking a 'faster and sooner' stance on rate hikes investors have been cutting their holdings in risk assets across the board, Agarwal said.

"We have seen cash holdings of global funds increase to 5.3 per cent from 5 per cent a month ago. The Ukraine geopolitical situation has put further pressure on already skittish global investors. We expect that FPIs will continue their net negative stance till clarity emerges on an end to the Ukraine situation. The only silver lining is the LIC IPO," he noted.

The assets under the custody of FPIs declined to Rs 52.12 lakh crore in January-end from Rs 52.72 lakh crore in December-end.

Piper Serica's Agarwal said Indian economy continues to open up rapidly.

"Quarterly earnings numbers have been broadly in line and overall market valuation has tapered down to the historical range. Our expectation is that we will see significant FPI inflows during the current calendar year, but it is difficult to forecast the timing of the same," he added.