Investment through Participatory Notes (P-Notes) into India’s capital market grew to Rs 2.54 lakh crore (about $39 billion) at the end of September, from the previous month.
Prior to that, investment via this route has been declining in the three months (June-August) after touching a seven-year high of Rs 2.85 lakh crore in May. This was the highest investment since February 2008, when the cumulative value stood at Rs 3.23 lakh crore. P-Notes, mostly used by overseas HNIs (High Net Worth 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 cost for them, but the flip side is that the route can also be used for round-tripping of black money. According to Sebi data, total value of P-Notes investment in Indian markets (equity, debt and derivatives) increased to Rs 2,53,875 crore at September-end, from Rs 2,53,310 crore in the previous month. The total outstanding value of P-Notes witnessed a steady rise since January and the momentum continued till March. However, investments through this route registered a drop in April, but hit a seven-year high in May. The inflows slipped in the subsequent three months (June-August) and marginally rose in September.
The drop in investment via P-Notes comes amid Supreme Court-appointed Special Investigation Team (SIT) on black money asking Sebi to review its regulations on participatory notes to help identify the end users of these instruments. However, the government later said it has no intention of banning this financial instrument overnight.