Investment via participatory notes rises to Rs 87,813 crore in September

Investment in the Indian capital markets through participatory notes rose to Rs 87,813 crore at the end of September, making it the second consecutive monthly increase, as the country witnesses the best growth and earnings among emerging markets.

Participatory notes (P-notes) are issued by registered FPIs to overseas investors who wish to be 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 -- stood at Rs 87,813 crore in September compared to Rs 84,810 crore in August.

In comparison, investment through this route was Rs 75,725 crore in July-end, Rs 80,092 crore in June-end, Rs 86,706 crore in May-end and Rs 90,580 crore at the end of April.

Of the total Rs 87,813 crore invested through the route till September 2022, Rs 79,418 crore was invested in equities, Rs 9,156 crore in debt, and Rs 239 crore in hybrid securities. In comparison, Rs 75,389 crore was invested in equities and Rs 9,330 crore in debt during July this year.

Investment via P-notes normally moves in trend with FPI investment. When there is a global risk to the environment, investment through P-notes increases and vice- versa.

"Among emerging markets India has the best growth and earnings story. Many FPIs are selling in China and some money is moving to India. But now Indian valuations are high from a short-term perspective. This may restrain capital flows to India via P-notes," V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.

Divam Sharma, founder at Green Portfolio, a Sebi-registered portfolio management service provider, said the markets are seeing the peak of all bad news being factored in. The US markets corrected almost 20 per cent from peak and usually at such low levels the shorts are squared, which indicates a rise in markets and hence investments coming back to equities.

"Considering a high inflation, and chances of recession in some developed economies, India is an outlier for the FPI money, which is anticipating a dollar return of above 10 per cent. We are also seeing reduction in China allocation and that money for EMs should be reallocated to India going forward," he said.

Going ahead, he said that India will be commanding a premium in its market valuations as the country will continue to see the appetite from foreign investors along with domestic institutions and retail investors in the coming year.

However, the broader market (smallcaps and midcaps) is yet to perform and will throw opportunities for FPIs to Indian equities going forward, he added.

Meanwhile, FPIs pulled out over Rs 7,600 crore from Indian equities in September after investing in a little over Rs 51,200 crore in the preceding month.