Investments via P-Notes rise to Rs 2.11 lakh crore in August

Investment through this route has been rising in the past few months

Investments into Indian capital markets through participatory notes (P-Notes) surged to Rs 2.11 lakh crore ($34 billion) last month.

According to the data released by the Securities and Exchange Board of India (Sebi), the total value of P-Note investments in Indian markets increased from Rs 2,08,284 crore in July to Rs 2,11,499 crore at the end of August.

Prior to that, investment into Indian markets had risen to over six-year high of Rs 2.24 lakh crore in June.

P-Notes are mostly used by foreign high net worth individuals, hedge funds and other foreign institutions, allow them to invest in Indian markets through registered foreign institutional investors (FIIs), while saving on time and costs associated with direct registration.

Investment into Indian market via P-Notes has been rising in the past few months and analyst attributed the surge to hopes of investors from a stable government.

It shot up in May after general election results, primarily on the new government's promise to revive economic growth and the momentum continued in June. However, it slipped in July but again climbed last month. Besides, the value of P-Notes issued with derivatives as underlying assets stood at Rs 1.62 lakh crore as on Augsut 31, 2014.

However, the amount invested through P-Notes marginally fell to 10.3 per cent of total FII investments in August from 10.6 per cent in the previous month. Till a few years ago, P-Notes used to account for more than half of the total FII investments, but their share has fallen after Sebi tightened disclosure norms and other regulations.

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

FIIs, the key drivers of Indian markets, pumped in a net amount of more than Rs 5,400 crore ($887 million) in the domestic equity market last month, while they poured in nearly Rs 17,000 crore ($2.76 billion) in the debt market in August.