P-Note investments drop to $34 bn in July after 6-yr high

Investments in Indian shares through participatory notes (P-Notes) in July dropped to Rs 2.08 lakh crore ($34 billion) after hitting a six-year high in the preceding month.

This also marks the first decline since April.

According to the data released by the Securities and Exchange Board of India (Sebi), the total value of P-Note investments in Indian markets (equity, debt and derivatives) declined to Rs 2,08,284 crore at the end of July from Rs 2,24,248 crore in June.

The June figure marked the highest investments into Indian shares through P-Notes since May 2008, when the cumulative value of such investments was Rs 2,34,933 crore.

P-Notes are mostly used by foreign HNIs (high networth individuals), hedge funds and other foreign institutions, allowing these to invest in Indian markets through registered foreign institutional investors (FIIs), saving on time and costs associated with direct registration.

Investment into the equity market via P-Notes had been rising in the past few months and analysts attributed the surge to hopes of investors from a stable government.

It shot up in May after general elections' results, primarily on the new government's promise to revive economic growth and the momentum continued in June. But it slipped in July.

The value of P-Notes issued with derivatives was Rs 1.6 lakh crore as on June 30. The quantum of FII investments through P-Notes grew to 12 per cent in June from 11.7 per cent in the previous month.

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 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 during a few months in 2007.

FIIs, the key drivers of Indian markets, pumped in a net amount of over Rs 13,000 crore (USD 2.2 billion) in the domestic equity market last month, while they poured in a net Rs 23,000 crore (USD 3.8 billion) in the debt market in July.