P-Notes investment at 3-month high of $26 billion in August

Investments into Indian shares through participatory notes (P-Notes) hit a three-month high of Rs 1.65 lakh crore (about $26 billion) in August.

P-Notes, mostly used by overseas High Networth Individuals (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.

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 1,64,817 crore at the end of August.

At the end of July, foreign investments into Indian markets through P-Notes stood at Rs 1.48 lakh crore, against Rs 1.47 lakh crore in June.

Notably, investments into Indian shares through P-Notes climbed to Rs 1.68 lakh crore in May, highest in six months, due to improved global liquidity situation but investment declined in the succeeding two months (June-July) because of a slew of global and domestic factors like deprecating rupee and widening current account deficit (CAD), among others.

Besides, the value of P-Notes issued with derivatives as underlying, stood at Rs 1,02,224 crore at August-end.

The quantum of FIIs investments through P-Notes increased to a nine month high of 13.27 per cent in August from 11.45 per cent in July.

Till a few years ago, P-Notes used to account for more than 50 per cent of total FII investments, but their share has fallen after Sebi tightened 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, pulled out Rs 5,922 crore (around $902 million) from the Indian stock market last month. Additionally, FIIs withdrew Rs 9,773 crore ($1.55 billion) from the debt market in August.