Participatory Notes investors put in $28 bn in 2012

However, the December figure was lower than total investments of Rs 1.77 lakh crore in Nov and Rs 1.75 lakh crore in Oct

The foreign investments into Indian markets through 'Participatory Notes', a preferred route for overseas HNIs and hedge funds, stood at Rs 1.51 lakh crore (about $28 billion) at the end of 2012.

According to the latest data released by the Securities and Exchange Board of India (Sebi), the cumulative value of P-Note investments in Indian markets (equity, debt and derivatives) was at Rs 1,51,084 crore at December-end.

However, the December figure was lower than total investments of Rs 1.77 lakh crore in November and Rs 1.75 lakh crore in October.

At the end of 2011, investment by rich overseas entities in the Indian market through P-notes stood at Rs 1.38 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, value of P-Notes issued with derivatives as underlying, was at Rs 1.01 lakh crore at the end of the 2012.

The quantum of FIIs investments through P-Notes, however, declined to 11.3% in December from 13.7% in the previous month.

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

According to market analysts, after a lull seen in the first half of 2012, overseas entities have come back to India on slew of policy reform initiatives taken by the government.

They said the postponement of General Anti-Avoidance Rules (GAAR) by two years would further boost the investment through this route.

The P-note investments were on a steep uptrend this year till mid-March, but started declining sharply after the government in its Union Budget proposed GAAR taxation regime and certain retrospective amendments for taxing offshore transactions.

FIIs, the key driver of Indian markets, poured in $24.4 billion into Indian equities in 2012, about $5 billion below from the record purchases two years ago.

P-notes have been accounting for about 15-20% of total FII holdings in India since 2009, lower than 25-40% of such holdings in 2008.

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