The Securities and Exchange Board of India's U-turn on its policy related to participatory notes will not make much of a difference in the short run. However, when things settle down and the sentiment reverses, the gates have been opened for foreign institutional investors to come back.

That's the consensus among market players after the market regulator removed the restrictions on P-notes imposed in October last year.

A fund manager at a local brokerage house desk said the context has now changed. "Then it was a problem of plenty; the situation is completely different now. The measures now can at best have a sentimental impact and FIIs will not invest just because this route is now available," he said.

Sidharth Shah, head, funds practices with legal advisory firm Nishith Desai and Associates, said Sebi should also consider allowing foreign venture capital investors. This is stuck in regulatory hurdles and 80 applications with investment intentions of $ 10 billion dollars are pending with Sebi.

A representative of a large FII having a huge share in the issue of P-notes said that these relaxations are "no big deal". The 40 per cent limit on investments through P-notes was not a hurdle as selling by FIIs in the last three quarters have been so huge that most of them have enough leg room for issuing fresh P-notes.

Vikas Khemani, head of institutional equity at Edelweiss Capital, said, "The relaxation is alright but where is the FII money? The move itself will not result in an increase in FII inflows."

Amitabh Chakraborty, president-equity, Religare Securities, said none of the FIIs his firm talks with are near the 40 per cent limit any way and nobody is in a hurry to come.

Foreign investors will be more careful, says Bhave

Securities and Exchange Board of India Chairman C B Bhave feels investors will be more careful while using the P-notes route. "People have understood that while investing through this route, they are taking counter-party risk," Bhave told Business Standard.