P-note investments surge to $43 billion

Investments into Indian markets through participatory notes (P-notes) have surged to the highest level in over seven years at Rs 2.72 lakh crore (over $43 billion) at the end of March 2015. P-notes, mostly used by overseas HNIs (High Networth Individuals), hedge funds and other foreign institutions, allow such investors to invest in Indian markets through registered Foreign Institutional Investors (FIIs). This saves time and costs for investors, but the flip side is that the route can also be used for round tripping of black money.

According to the data released by Securities and Exchange Board of India (Sebi), the total value of P-note investments in Indian markets (equity, debt and derivatives) rose to Rs 2,72,078 crore at the end of March from Rs 2,71,752 crore in the preceding month. This is the highest investment since February 2008, when the cumulative value of such investments stood at Rs 3.23 lakh crore. The quantum of FII investments through P-notes too climbed to 11.3 per cent last month from 11.1 per cent in February. Till a few years ago, P-Notes used to account for more than 50 per cent 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 per cent of the total FII holdings in India since 2009, while it used to be much higher — in the range of 25-40 per cent — in 2008. It was as high as over 50 per cent at the peak of Indian stock market bull run in 2007.