P-NOTE INVESTMENTS DIP
NEW DELHI: Investments through participatory notes (P-notes) plunged to nearly nine-year low of Rs 1.06 lakh crore in the capital market at March-end amid stringent norms put in place by the regulator Sebi to check misuse of these instruments.
P-notes are issued by registered foreign portfolio investors to overseas investors who wish to be part of Indian stock markets without registering themselves directly. They, however, need to go through a proper due diligence process.
According to the Sebi data, total value of P-note investments in Indian markets — equity, debt, and derivatives -- slumped to a low of Rs 1,06,403 crore at March-end from Rs 1,06,760 crore at the end of the preceding month. Prior to that, the figure was Rs 1.19 lakh crore.
This is the lowest level since June 2009 when the cumulative value of such investments stood at Rs 97,885 crore.
Of the total investments in last month, P-note holdings in equities were at Rs 73,264 crore and the remaining in debt and derivatives markets.
However, the quantum of FPI investments via P-notes rose to 3.4 per cent during the period under review from 3.3 per cent in the preceding month.
P-note investments were on a decline since June last year and hit an over eight-year low in September. However, these investments slightly rose in October but fell in November and the trend continued till March this year.
The decline could be attributed to several measures taken by the market watchdog to stop the misuse of the controversyridden participatory notes.
In July 2017, Sebi notified stricter norms stipulating a fee of $1,000 that would be levied on each instrument to check any misuse for channelising black money.
Also, the regulator 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 followthrough of Sebi's board approval of a relevant proposal in June last year. These measures were an outcome of a slew of other steps taken by the regulator in the recent past. In April 2017, Sebi had barred resident Indians, NRIS and entities owned by them from making the investment through P- notes. NEW DELHI: Foreign investors have pumped in Rs 3,935 crore into the Indian debt markets in the first fortnight of the month, driven by a stable currency and attractive bond yields.
This comes following a net outflow of Rs 12,750 crore in the last two months (Februarymarch) largely due to a surge in interest rates in home markets as well as rupee depreciation outlook due to crude price and fiscal deficit.
Prior to that, foreign portfolio investors (FPIS) had put in over Rs 8,500 crore in January.
According to depository data, FPIS invested a net sum of Rs 3,935 crore ($605 million) in the debt markets during April 2-13.
"With stable currency and bond yields at attractive levels, FPIS continue to find value in Indian bonds. The net positive flow into the fixed income segment could also be attributed to the recent increase in FPI limit for investment in government securities," Morningstar India Senior Analyst Manager Research Himanshu Srivastava said.
Ajay Bodke, CEO and Chief Portfolio Manager, PMS at Prabhudas Lilladher said that the outlook for investments in debt markets has brightened after the RBI'S recently announced monetary policy that lowered the target for retail inflation to 4.7-5.1 per cent for first half of the ongoing fiscal as against its forecast of 5.1-5.6 per cent in February 2018.
"This along with RBI raising the investment limit for FPI in central government securities to 5.5 per cent of outstanding stock of securities in 2018-19 and to 6 per cent of outstanding stock of securities in next fiscal led to cooling-off of yields and renewed interest among FPI'S for Indian debt securities," he added.
Going ahead, Srivastava said that rate hikes by the US Federal Reserve could adversely impact the flows into the debt segment.