Investments into Indian shares through participatory notes (P-Notes), a preferred route for high net worth individuals (HNIs) and hedge funds from abroad, hit a nine-month high of Rs 1.77 lakh crore (about $32.4 billion) in November.
According to the latest 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) rose to Rs 1,77,164 crore at the end of November, after falling to a near-three-year-low of Rs 1,28,895 crore in May.
The November figure has reached the highest level since February, when the cumulative value of such investments stood at Rs 1,83,151 crore.
P-Notes, mostly used by overseas HNIs, hedge funds and other foreign institutions, allow them to invest in Indian markets through registered foreign institutional investors (FIIs), while saving on time and costs associated with direct registrations.
Market analysts say investment through P-Notes has been rising in the past three months on policy reform measures taken by the government and its initiatives to address tax-related issues.
Besides,the value of P-Notes issued with derivatives as underlying, was at a Rs 94,658 crore at the end of November.
The quantum of FII investments through P-Notes, however, declined to 13.7 per cent in November, from 14.4 per cent in the previous month.
P-Notes have accounted for 15-20 per cent of total FII holdings in India since 2009. However, 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 the Indian stock market bull run during a few months of 2007. Their share has fallen after Sebi tightened disclosure and other regulations for such investments.
FIIs, the key driver of Indian markets, poured in $24 billion (about Rs 1.28 lakh crore) into Indian equities in 2012 the second highest net inflows since 1993 when India opened its door to foreign investors.
Overall, P-Note 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 General Anti-Avoidance Rule and certain retrospective amendments for taxing offshore transactions.
