Stock market investments via P-Notes drop to Rs 2.36 lakh crore in Dec

Investment in domestic markets through participatory notes (P-Notes), a preferred route for HNIs and hedge funds from abroad, declined to Rs 2.36 lakh crore (US $38 billion) in December from the preceding month.

According Securities and Exchange Board of India (Sebi) data, the total value of P-Note investments in domestic markets (equity, debt and derivatives) dropped to Rs 2,36,677 crore in the reporting month from Rs 2,49,210 crore (US $39 billion) in November 2014.

Prior to that, investment through P-Notes had hit nearly a seven-year high of Rs 3.23 lakh crore in October.

P-Notes, mostly used by overseas HNIs (High Networth Individuals), hedge funds and other foreign institutions, allow such investors to infuse funds in domestic markets through registered Foreign Institutional Investors (FIIs).

This saves time and costs for investors, but the flip side is that the route can also be used for round-tripping of black money.

The quantum of FII investments through P-Notes dropped to 10.5 per cent in December from 11 per cent in November.

Till a few years ago, P-Notes used to account for more than 50 per cent of the total FII investments, but their share has fallen after capital market regulator Sebi tightened the disclosure norms and other regulations for such investments.

P-Notes have been accounting for mostly 15-20 per cent of the total FII holdings in the country 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 the stock market bull run during 2007.

Earlier in November, the market watchdog directed foreign investors to ensure compliance with all necessary norms before issuing such notes with immediate effect amid concerns about possible misuse of Offshore Derivative Instruments, or P-Notes, for money laundering and other such purposes.