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P-Notes investment hits 3-month high

z Total value rose to R1.65 lakh cr at August-end

Investments in Indian debt and equities through participatory notes (P-Notes) hit a three-month high of Rs 1.65 lakh crore in August.

P-Notes are financial instruments used by foreign investors or hedge funds that are not registered with Securities and Exchange Board of India to invest in Indian markets. According to the data released by Sebi,the notional value of P-Note in Indian markets (equity,debt and derivatives) rose to 1,64,817 crore at the end of August as against a value of Rs 1.48 lakh crore in July and Rs 1.47 lakh crore in June.

As a result of the rise in inflows through this route in August,the P-Notes have also raised their percentage holding in the total FII holding in Indian markets. The total value of P-Notes holding on equity and debt,excluding the derivatives as a percentage of the total assets under custody of FII’s,rose to a 17-month high of 8.23 per cent. That including the derivatives is at a 9-month high of 13.27 per cent.

P-Notes accounted for more than 50 per cent of total FII investments at its peak in 2007 when the stock markets were on a bull run but then their share fell after Sebi tightened disclosure norms and other regulations for such investments after there were concerns on hot money entering the market and the regulator was concerned over the fact that the final investor could not be traced. The share now stands at around 13 per cent.

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However,August did not see a net inflow of funds by FIIs both in Indian debt and equities. While the net outflow by FIIs in the month of August stood at Rs 5,922 crore,that from the debt market stood at Rs 9,772.9 crore taking the total accumulated net outflow at Rs 15,695 crore as the US economy showed signs of improvement and the rupee weakened significantly during the month.

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

In May,investments through P-Notes climbed to Rs 1.68 lakh crore,highest in six months on the back of an improved global liquidity but the investments declined in the following months because of deprecating rupee and widening current account deficit and improving US economy.

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P-Notes,mostly used by overseas HNIs,hedge funds and other foreign institutions,allow them to invest in Indian markets through registered FIIs,while saving on time and costs associated with direct registrations

P-Notes investment climbed to Rs 1.68 lakh crore in May due to improved global liquidity situation but investment declined in June-July because of deprecating rupee and widening CAD

Till a few years ago,P-Notes used to account for more than 50% of total FII investments,but their share has fallen after Sebi tightened disclosure norms and other regulations for such investments

First published on: 24-09-2013 at 00:27 IST
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