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Foreign portfolio investment into Indian shares and debt through the participatory note (P-note) saw a sharp rise in March. The total value of P-note investments stood at Rs 2.07 lakh crore in March, up 20 per cent compared with Rs 1.73 lakh crore in February, data released by the Securities and Exchange Board of India (Sebi) showed on Friday.
In March, the share of investment through P-notes, typically used by global hedge funds, to the total assets of FIIs stood at 13 per cent, the highest in three months. The value of investments through P-notes would increase further in the run-up to the election results in May, said market players.
Experts say the surge in investment through P-notes is due to the euphoria seen in the Indian market on hopes the business-friendly Bharatiya Janata Party (BJP) will win the general elections next month.
The P-note route provides foreign investors quick and easy access to the Indian market. A P-note holder can bet on Indian shares without registering here. Foreign institutional investors (FIIs) already registered and regulated by Sebi issue these instruments to investors aboard. A lot of foreign investors without direct access to the Indian market could have played the “election theme” through the P-note route, said market watchers. So far this year, Indian markets have seen one of the best performances globally. Improving prospects on the macroeconomic front, coupled with stabilisation in the rupee, had provided comfort to foreign investors, experts said.
“There have been strong inflows in March and there is a sense a large proportion of this came in through the P-note route,” Manish Sonthalia, vice-president and fund manager of Motilal Oswal Asset Management Company, had said earlier.
In March, Indian markets rallied six per cent, led by robust foreign flows. During the month, FIIs had invested a whopping Rs 20,000 crore ($3.2 billion) in Indian stocks.
UR Bhat, managing director of Dalton Capital Advisors, said many global investors were betting on Indian stocks through P-notes, anticipating a positive election outcome. “The election is a big event, even from a global investor’s perspective. Everybody wants to be a part of that theme,” he said.
In 2007, P-notes accounted for 50 per cent of FII assets in the country. However, due to tightening of regulatory norms and concern about retrospective taxation, the share of P-notes fell to 11 per cent last year.
Since 2009, the share of P-notes to the overall foreign holding has been 11-20 per cent.
In March this year, overall FII assets stood at about Rs 16 lakh crore, about 20 per cent of India’s total market capitalisation. As of Thursday, the value of about 5,350 companies listed on the BSE, the exchange with the most listed companies in India, was Rs 75.82 lakh crore.
