Overall investments in the Indian capital market through participatory notes (P-notes) fell to Rs 1.28 trillion at November-end after witnessing a rise in the previous month. P-notes are issued by registered foreign portfolio investors to overseas players who wish to invest in the Indian capital market without registering themselves directly. They, however, need to go through due diligence. Total value of P-notes investment in Indian markets — equity, debt and derivatives — declined to Rs 1.28 trillion at November-end from Rs 1.31 trillion at the end of October, according to market regulator Sebi data. P-note investments were on a decline since June and hit an over eight-year low in September; however, it climbed up in October.
This decline was in view of stringent norms put in place by the Securities and Exchange Board of India (Sebi). Of the total investments in November, P-note holdings in equities were at Rs 928.46 billion and the remaining in debt and derivatives markets. Besides, the quantum of FPI investments via P-notes dipped to 4 per cent, during the period under review, from 4.1 per cent in the preceding month. Over the past few months, Sebi has taken several measures to stop the misuse of the controversy-ridden participatory notes. In July, the markets regulator notified stricter P- notes norms stipulating a fee of $1,000 that would be levied on each instrument to check any misuse of channelising black money. Also, Sebi prohibited FPIs from issuing such notes where the underlying asset is a derivative, except those which are used for hedging purposes. The move was a follow-through of Sebi's board approval of a relevant proposal in June. These measures were an outcome of a slew of other steps taken by the regulator in the recent past. In April, Sebi had barred resident Indians, NRIs and entities owned by them from making investment through P-notes. The decision was part of efforts to strengthen the regulatory framework for P-notes, which have been long seen as being possibly misused for routing black money from abroad.