P-Note investments dip to 8-yr low at Rs 1.19 lakh cr in Jan

Investments in the domestic capital market through participatory notes (P-notes) plunged to a nearly eight-and-a-half-year low of Rs 1.19 lakh crore in January-end amid stringent norms put in place by regulator Sebi to check misuse.
P-notes are issued by registered foreign portfolio investors to overseas investors who wish to be part of Indian stock markets without registering themselves directly. They, however, need to go through a proper due diligence process.
According to Sebi data, the total value of P-note investments in Indian markets -- equity, debt, and derivatives -- slumped to Rs 1,19,556 crore at January-end from Rs 1,24,810 crore at the end of the preceding month.

This is the lowest level since August 2009, when the cumulative value of such investments stood at Rs 1,10,355 crore.
Of the total investments in November, P-note holdings in equities were at Rs 84,278 crore and the remaining in debt and derivatives markets.
Besides, the quantum of FPI investments via P-notes dropped to 3.5 per cent during the period under review from 3.8 per cent in the preceding month.

P-note investments were on a decline since June last year and hit an over eight-year low in September. However, these investments slightly rose in October but fell in November and the trend continued till January this year.

The decline could be attributed to several measures taken by Sebi to stop the misuse of the controversy-ridden participatory notes.
In July 2017, Sebi notified stricter norms stipulating a fee of USD 1,000 that would be levied on each instrument to check any misuse for channelising black money.
Also, Sebi prohibited FPIs from issuing such notes where the underlying asset is a derivative, except those which are used for hedging purposes.
The move was a follow-through of Sebi's board approval of a relevant proposal in June. These measures were an outcome of a slew of other steps taken by the regulator in the recent past.

In April, Sebi had barred resident Indians, NRIs and entities owned by them from making the investment through P- notes. The decision was part of the efforts to strengthen the regulatory framework for P-notes, which was long seen as being possibly misused for routing black money from abroad.