Investments via P-notes decline marginally

The share of foreign portfolio investments through participatory notes (P-notes) dropped marginally to 9.2 per cent in May, from 9.3 per cent in the preceding month due to strict vigil on funds coming through this route.

The Securities and Exchange Board of India (Sebi) in May had tightened the norms to curb misuse of offshore derivative instruments (ODI) or P-notes used by foreign investors not registered in India.

P-notes typically allow foreign investors to take exposure to Indian stocks without registering with the market regulator. These instruments are issued by foreign portfolio investors (FPI) registered with Sebi.

According to Sebi data released on Thursday, the total value of P-notes investment in Indian market (equity, debt and derivatives) increased to Rs 2,15, 338 crore at the end of May from Rs 2,12,132 crore at April end.

Although, the equity assets under custody have gone up to Rs 23.49 lakh crore in May as compared to Rs 22.81 lakh crore in April, it is largely because of gain in stock prices.

Earlier, a P-notes holder had to adhere to KYC (know your customer) or AML norms of just their home jurisdiction.

The regulator had also curbed transferability of P-notes between two foreign investors and also increased frequency of reporting by P-notes issuers.

The total value of P-notes investment in Indian market has fallen since October last year and the trend continued till February, However, it saw a slight recovery in March.

According to Sebi data, the peak of P-notes investment was seen in 2007 to a record of Rs 4.5 lakh crore. It has been falling over the year as Sebi has tightened disclosure norms and other regulations.