P-Notes investment rises to 3-month high of $26-bn in Aug

Investments into Indian shares through participatory notes (P-Notes), a preferred route for HNIs and hedge funds from abroad, hit a three-month high of Rs 1.65 lakh crore (about $26 billion) in August.

According to the latest data released by the Securities and Exchange Board of India (Sebi), the total value of P-Note investments in Indian markets (equity, debt and derivatives) rose to 1,64,817 crore at the end of August.

At the end of July, foreign investments into Indian markets through P-Notes stood at Rs 1.48 lakh crore as against Rs 1.47 lakh crore in June.

P-Notes, mostly used by overseas HNIs (High Networth 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 registrations.

Notably, investments into Indian shares through P-Notes climbed to Rs 1.68 lakh crore in May, highest in six months, due to improved global liquidity situation but investment declined in the succeeding two months (June-July) because of a slew of global and domestic factors like deprecating rupee and widening current account deficit (CAD), among others.

Besides, the value of P-Notes issued with derivatives as underlying, stood at Rs 1,02,224 crore at August-end.

The quantum of FIIs investments through P-Notes increased to a nine month high of 13.27% in August from 11.45% in July.

Till a few years ago, P-Notes used to account for more than 50% of total FII investments, but their share has fallen after Sebi tightened disclosure norms and other regulations for such investments.

The PNs have been accounting for mostly 15-20% of total FII holdings in India since 2009, while it used to be much higher, in the range of 25-40%, in 2008.

It was as high as over 50% at the peak of Indian stock market bull run during a few months in 2007.

FIIs, the key drivers of Indian markets, pulled out Rs 5,922 crore (around $902 million) from the Indian stock market last month.

Additionally, FIIs withdrew Rs 9,773 crore ($1.55 billion) from the debt market in August.