P-Notes allow foreign investors to enter markets through registered foreign institutional investors and exempts them from getting registered directly with Securities and Exchange Board of India.
The level of investments in domestic shares through participatory notes declined to Rs 2.5 lakh crore ($39 billion) in November after hitting nearly a 7-year high in the preceding month.
According to the data released by the Securities and Exchange Board of India, the total value of P-Note investments in Indian markets (equity, debt and derivatives) dropped to Rs 2,49,210 crore (Rs 2,492.1 billion) last month from Rs 2,65,675 crore ($43 billion) in October.
Investment in October was the highest since February 2008, when the cumulative value of such investments stood at Rs 3,22,743 crore (Rs 3,227.43 billion).
P-Notes allow foreign investors to enter markets through registered foreign institutional investors and exempts them from getting registered directly with Securities and Exchange Board of India.
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 11 per cent last month from 12.2 per cent in October.
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 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 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 2007.
Last month, Sebi 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.
