Investments by rich overseas entities through participatory notes into Indian markets rose to R1,41,710 crore (around $26 billion) in August, the highest level since March, even as funds pumped into equities fell for the second consecutive month.
As per the latest data released by market regulator Sebi, P-Note investments in Indian markets (equity, debt and derivatives) has reached the highest level since March when cumulative value of their investment stood at R1,65,832 crore.
The P-Notes, mostly used by overseas HNIs (High Networth Individuals), hedge funds and other foreign institutions, allow them to put their money into Indian markets through already registered FIIs, while saving on time and costs associated with direct registrations.
The surge in the investment appears to be largely into the derivatives market, although equities account for more than half of the funds pumped in by P-Note investors into Indian markets.
The quantum of FII investments through these P-Notes also rose to 12.7%, up from 11.8% in the previous month the highest since 15% in March this year.
Until a few years ago, the P-Notes used to account for more than 50% 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 in the last three to four months overseas entities have come back to India on expectations of the government’s fresh initiatives 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 mostly 15-20% of total FII holdings in India since 2009, while it used to be much higher, in the range of 25-40% in 2008. However, it was as high as over 50% at the peak of Indian stock market bull run during a few months in 2007.