P-Notes investments hit 5-month low

Investments into Indian stocks through participatory notes (P-Notes), a preferred route for high networth individuals (HNIs) and hedge funds from abroad, slipped to a five-month low of Rs 1.63 lakh crore (about $26 billion) in January. According to the latest data released by market regulator Sebi, the total value of P-Notes investment in Indian markets (equity, debt and derivatives) declined to Rs 1,63,348 crore at the end of January from Rs 1,67,566 crore in the preceding month. The January figure has reached the lowest level since August 2013 when the cumulative value of such investments stood at Rs 1.65 lakh crore.

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.

Besides, the value of P-Notes issued with derivatives as underlying, stood at Rs 1.12 lakh crore at the end of January 31, 2014.

The quantum of FII investments through P-Notes marginally rose to 11.5% in January from 11.4% in the preceding month.

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

P-Notes have been accounting for mostly 15-20% of the 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 for a few months in 2007.

FIIs, the key drivers of Indian markets, pumped in a net amount of Rs 714 crore ($125 million) in the domestic equity market last month. Also, they infused a net Rs 12,609 crore ($2.06 billion) in the debt market in January.