Investments via P-notes shrank further in August

The investments have reduced due to tightening of norms

The share of foreign portfolio investments (FPI) through participatory notes (P-notes) has slipped further in August on the back of tightening of norms. P-notes accounted for 6.2 per cent of FPI assets in equity and debt but excluding derivatives, down from 6.5 per cent in the previous month. The share of p-notes in total FPI assets, including derivatives, remained unchanged at 8.4 per cent, data provided by the Securities and Exchange Board of India (Sebi) show.

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

According to Sebi data, the total value of P-notes investment in Indian markets — equity, debt and derivatives — has seen a marginal increase to Rs 2.16 lakh crore at the end of August from Rs 2.12 lakh crore at July-end. It is largely because of gain in stock prices.

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

The drop in the investment comes amid Sebi curbs on misuse of offshore derivative instruments or P-notes used by foreign investors not registered in India. Earlier, a P-note holder had to adhere to know-your-customer or anti-money laundering norms of their home jurisdiction.

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

The peak of P-note investment was seen in 2007 – Rs 4.5 lakh crore. It has been falling since the Sebi tightened disclosure norms and other regulations.