FIIs hold on to PNs

The sub-accounts of foreign institutional investors (FIIs), who are required to unwind their positions built up through participatory notes (P-notes) in cash markets over a period of 18 months, are holding on to their exposures.

The move is aimed at extracting bigger profits on their P-notes before the deadline of April 2009 on the back of fast-rising stock prices.

FIIs were also not unwinding their P-note exposures in the derivatives market in a hurry, said dealers.

There are 3,000-odd sub-accounts registered with the Securities and Exchange Board of India (Sebi), and the new rules on P-notes make it mandatory for these sub-accounts to unwind their positions over an 18-month period.

Deven Choksey, managing director, KR Choksey, a local brokerage firm, said FIIs and their sub-accounts were not seen unwinding their exposures as the rising rupee and fast-appreciating stock prices were encouraging them to hold on to their positions.

Hedge funds, according to dealers, have been major investors in the Indian equity markets through P-notes.

"These overseas funds have collected money from investors for taking an exposure into the Indian markets. It is not easy for them to unwind the positions in a hurry," he said.

According to Sebi, 34 FII sub-accounts issue P-notes or offshore derivative instruments (ODIs).