Participatory note investment rises to over Rs 60,000 cr till May-end

Investments through participatory notes (P-notes) in the domestic capital market rose to Rs 60,027 crore till May-end, making it the second consecutive monthly increase.

P-notes are issued by registered foreign portfolio investors (FPIs) to overseas investors who wish to be part of the Indian stock market without registering themselves directly. They, however, need to go through a due diligence process.

According to Sebi data, the value of P-note investments in Indian markets -- equity, debt, hybrid securities and derivatives -- stood at Rs 60,027 crore until May, while the same was at Rs 57,100 crore at the end of April.

The investment level had fallen to an over 15-year-low of Rs 48,006 crore at the end of March.

The figure at March-end was the lowest level of investment since October 2004, when the total value of P-note investments in Indian markets stood at Rs 44,586 crore.

The lower figure in March came amid significant volatility in broader markets on concerns over coronavirus-triggered recession.

Of the total Rs 60,027 crore invested through the route till May, Rs 49,160 crore was invested in equities, Rs 10,106 crore in debt, Rs 159 crore in the derivatives segment and Rs 103 crore in hybrid securities.

Fund inflow through the route stood at Rs 68,862 crore, Rs 67,281 crore and 64,537 crore at the end of February 2020, January 2020 and December 2019, respectively. However, it was at Rs 69,670 crore at November-end last year.

Arjun Mahajan, head of institutional business, at Reliance Securities said the P-note is now not a preferred route for investing in India as Sebi has made registration easier and also desirable for FPIs. However, due to certain taxation laws in India, FPIs still want to explore this route of investing.

Another aspect that may be considered in the current uncertain environment is that certain FPI investors, who don't have an FPI licence, and who may not want to invest in India for long term and just invest to either capitalise on easy liquidity and also attractive valuations (when compared to historic peaks), may prefer P-note route as it gives them the option to invest for however long they want, make their target returns and go away, he added.

Earlier in September, Securities and Exchange Board of India (Sebi) simplified know-your-customer (KYC) requirements and registration process for FPIs. Besides, the regulator broad-based the classification of such investors.

Meanwhile, FPIs withdrew a net sum of Rs 7,355 crore from the capital markets (equity and debt) in May. This was much lower than a pull out of Rs 14,858 crore by them in the preceding month.