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Foreign investments into domestic securities—both debt and equity—through the participatory note (P-note) route saw a sharp decline in April.
The total value of P-note investments came down from Rs 2.07 lakh crore in March to Rs 1.87 lakh crore in April, a drop of 10 per cent, data released by capital market regulator Securities and Exchange Board of India (Sebi) on Wednesday showed. This decline has come even as flows from foreign institutional investors (FII) into the equities market has been robust, signaling that foreign investors could have opted for conventional way of investing.
Foreign investors can invest in the Indian market through the FII, sub-account and P-note route. Investors not directly registered with Indian regulators opt for the P-note route, a quick and easy way of investing. Comparatively, the registration and due diligence for FIIs and sub-accounts is tedious and stringent.
FIIs registered and regulated by Sebi issue these P-notes, based on Indian shares to their clients. According to the latest data, the share of P-notes in overall FII assets, including equity, derivatives and debt, declined to 13.7 per cent in April from 11.7 per cent in the previous month.
Meanwhile, value of P-note investments in only equity declined to Rs 1.18 lakh crore from Rs 1.25 lakh crore, while its share dropped to 7.9 per cent from 8.5 per cent.
FII flows in equities in April, however, were a robust Rs 10,182 crore. The Indian market had remained flat during April.
Market experts said that investors would have preferred the conventional FII and sub-account route to invest fearing regulatory crackdown after P-notes investment had seen a sharp rise in March.
Value of P-note assets had reached a three-year high of Rs 2.07 lakh crore in March. Overall, foreign investment in the country has been on the rise on hopes a stable government and improvement in the economy. FIIs pumped in nearly Rs 30,000 crore each in debt and equity between January and April.
In 2007, P-notes accounted for as much as 50 per cent of the FII assets in the country. However, due to tightening of regulatory norms and concerns surrounding retrospective taxation the share of P-notes had dropped below 11 per cent last year. Since 2009, the share p-notes as a percentage of total foreign holding has been in a range between 11 per cent and 20 per cent. The total of FII assets in April stood at Rs 16 lakh crore, according to Sebi data.
