Investment via participatory notes declines to Rs 86,706 crore in May

FPIs will reverse selling stance in one/two quarters, return to India's equities: Experts

Investment in the Indian capital markets through participatory notes (P-notes) dropped to Rs 86,706 crore until end-May from the preceding month, while experts say foreign investors will reverse their selling stance and return to the country’s equities in the next one/two quarters.

P-notes are issued by registered foreign portfolio investors (FPIs) to overseas investors who wish to be a part of the Indian stock market without registering themselves directly.

They, however, need to go through a due diligence process.

According to the Securities and Exchange Board of India data, the value of P-note investments in Indian markets - equity, debt, and hybrid securities - stood at Rs 86,706 crore end-May, compared with Rs 90,580 crore end-April.

In March, the investment was at Rs 87,979 crore. It was Rs 89,143 crore in February and Rs 87,989 crore in January.

Of the total Rs 86,706 crore invested through the route until May, Rs 77,402 crore was invested in equities, Rs 9,209 crore in debt, and Rs 101 crore in hybrid securities.

In comparison, Rs 81,571 crore was invested in equities and Rs 8,889 crore in debt during April.
 

“In terms of offshore derivative instruments in equity and debt, we have reached the levels of December 2020. However, if we look forward from here, most of the pain is factored in with the increase in 10-year bond yields, and equity markets showing significant drawdown,” says Divam Sharma, founder, Green Portfolio - a portfolio management service provider.

There is still uncertainty around inflation levels and the US Federal Reserve’s (Fed’s) actions. Besides, currency correction has happened to a large extent.

“Equity markets are offering some attractive valuations at these levels. Supply-chain and inflation issues should begin to subside in the months to come. Markets usually move ahead of the economic cycle. We believe that over the next one/two quarters, we should see FPIs coming back to allocating capital towards Indian equities,” he added.

In line with a decline in P-notes investment, the assets under the custody of FPIs dropped 5 per cent to Rs 48.23 trillion end-May, from Rs 50.74 trillion end-April.

Sharma attributed a large part of this reduction to market correction in equity and debt portfolios.

Meanwhile, foreign investors withdrew nearly Rs 40,000 crore from Indian equities and Rs 5,505 crore from debt markets last month on fears of an aggressive rate hike by the Fed that haunted such investors and dented sentiment.

This was the eighth consecutive month of net pull-out by FPIs from equities.