Foreign investments into Indian markets through participatory notes (P-notes), a preferred route for foreign high net worth individuals (HNIs) and hedge funds, rose to a six-month high of Rs 1,46,600 crore (about $27 billion) in September, as various reform measures helped boost investor sentiments.
According to the latest data released by market regulator the Securities and Exchange Board of India (Sebi), the total value of P-note investments in Indian markets (equity, debt and derivatives) at the end of September is the highest since March, when the cumulative value of such investments stood at Rs 1,65,832 crore.
In August, P-note investments in the Indian markets was at Rs 1,41,710 (around $26 billion).
P-notes, mostly used by overseas HNIs, hedge funds and other foreign institutions, allow them to invest in Indian markets through already registered foreign institutional investors (FIIs), while saving on time and costs associated with direct registrations.
The value of P-notes issued with derivatives as underlying, was at Rs 64,221 crore as on September-end.
However, the quantum of FII investments through P-notes declined to 12 per cent.
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Until a few years ago, P-notes used to account for more than 50 per cent of total FII investments in India, 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 past few months, overseas entities have come back to the Indian markets on expectations of fresh initiatives by the government on policy reforms.
P-notes investments were on a steep uptrend this year till mid-March, but started declining sharply after the government, in its Union Budget, proposed a new taxation regime of the General Anti-Avoidance Rule (GAAR) and certain retrospective amendments for taxing offshore transactions.
P-notes have accounted for 15-20 per cent of total FII holdings in India since 2009. In 2008, it used to be much higher, in the range of 25-40 per cent. It was as high as over 50 per cent at the peak of the market bull run in 2007.