P-notes investment continues to swell for seventh month on robust macros

Investment in the Indian capital markets through participatory notes rose over a six-year high at Rs 1.33 lakh crore at September-end, making it the seventh consecutive monthly increase, on the back of robust macroeconomic fundamentals.

The growth in p-notes generally aligns with the trend in FPI flows. Pic: Reuters

Investment in the Indian capital markets through participatory notes rose over a six-year high at Rs 1.33 lakh crore at September-end, making it the seventh consecutive monthly increase, on the back of robust macroeconomic fundamentals.

This is the highest level since July 2017 -- when investment through the route stood at Rs 1.35 lakh crore, data from the Securities and Exchange Board of India (Sebi) showed.

The latest data includes the value of p-note investments in Indian equity, debt, and hybrid securities. Participatory notes (P-notes) are issued by registered Foreign Portfolio Investors (FPIs) to overseas investors who wish to be part of the Indian stock market without registering themselves directly.
They, however, need to go through a due diligence process.

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According to Sebi data, the value of p-note investments in Indian markets -- equity, debt, and hybrid securities -- stood at Rs 1,33,284 crore at the end of September as compared to Rs 1,28,249 crore a month earlier.

In comparison, investment through the route was Rs 1.23 lakh crore in July, Rs 1.13 lakh crore in June, Rs 1.04 lakh crore at May-end, Rs 95,911 crore at April-end, Rs 88,600 crore at March-end, Rs 88,398 crore at February-end and Rs 91,469 crore at January-end.

The growth in p-notes generally aligns with the trend in FPI flows. When there is a global risk to the environment, investment through this route increases, and vice-versa.

Market analysts say one of the prime factors for the growth in p-notes investments is the stable Indian economy against an uncertain global macro backdrop.
"Besides India's robust macros and rising attractiveness as an investment destination, investments through p-notes offer other advantages like anonymity (Sebi registration not required), ease of trading, and tax savings in select cases. In general, p-notes follow broader FPI trend, " Kedar Kadam, Director - Listed Investments, Waterfield Advisors, said.

"With India projected to be the fastest growing economy in the world, strong corporate earnings trajectory and attractive demographics, we believe the flows into Indian equities will continue in the coming years so long as ease of investing continues via p-notes," he added.

Of the total Rs 1.33 lakh crore invested through this route till September, Rs 1.22 lakh crore was invested in equities, Rs 10,688 crore in debt, and Rs 389 crore in hybrid securities.

In addition, assets under custody of FPIs grew to Rs 58.45 lakh crore at September-end from Rs 57.63 lakh crore in the preceding month. Meanwhile, FPIs pulled out Rs 14,767 crore from Indian equities in September, while they infused Rs 938 crore in the debt market.

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Capital Market Participatory Notes (P-Notes)