Economic reforms boost P-Note investments

The foreign investments into Indian markets through 'Participatory Notes', a preferred route for overseas HNIs and hedge funds, rose to a six-month high of Rs 146,600 crore ($27 billion) in September, as various reform measures helped boost investor sentiments.

As per the latest data released by market regulator Sebi, the total value of P-Note investments in Indian markets (equity, debt and derivatives) at the end of September is  the highest since March, when cumulative value of such investments stood at Rs 165,832 crore (Rs 1.66 trillion).

In August, P-Note investments in Indian markets were at Rs 141,710 (around $26 billion).

The P-Notes, mostly used by overseas HNIs (high networth individuals), hedge funds and other foreign institutions, allow them to invest into Indian markets through already registered FIIs, while saving on time and costs associated with direct registrations.

Besides, value of P-Notes issued with derivatives as underlying, was at Rs 64,221 crore (Rs 642.21 billion) as on September

end.

However, the quantum of Foreign Institutional Investors (FIIs) investments through these P-Notes declined to 12 per cent.

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

According to market analysts, after a lull seen in the past few months, overseas entities have come back to India on expectations of fresh initiatives by the government on policy reforms.

The 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 new taxation regime of General Anti-Avoidance Rule (GAAR) and certain retrospective amendments for taxing offshore transactions.

The PNs have been accounting for nearly 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.

However, it was as high as over 50 per cent at the peak of Indian stock market bull run during a few months in 2007.