Investment in P-notes continues to soar; hits 10-month high in August

Investment through participatory notes (P-notes) in the domestic capital market surged to over Rs 74,000 crore till August-end, making it the highest level in 10 months.

This marks the fifth consecutive monthly rise in the investment through the route, also signalling at growing confidence of foreign portfolio investors (FPIs) in the local market.

P-notes are issued by registered 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.

According to Sebi data, the value of P-note investments in Indian markets — equity, debt, hybrid securities and derivatives — stood at Rs 74,027 crore till August-end, while the same was at Rs 63,228 crore at the end of July.

The figure at August-end was the highest level of investment since October 2019, when the total value of P-note investments in the Indian markets stood at Rs 76,773 crore.

"The rise in FPI participation through P-notes shows their rise in confidence, since the 15-year lows of P-notes participation in March 2020,” said Divam Sharma, Co-founder at Green Portfolio, a Sebi registered portfolio management services.

The forward-looking FPIs are selectively taking a fresh long position in the markets on hopes of an early revival of the economy from a complete lockdown phase of the first quarter, he noted.

"This also brings a positive outlook to FPI participation in Indian markets since the descent of the P-notes participation post-2017, when Sebi prohibited FIIs to issue ODIs (offshore derivative instrument) having derivative instruments as underlying security other than for hedging their position in equity," he added.

Prior to that, the investment level was at Rs 62,138 crore, Rs 60,027 crore and Rs 57,100 crore at the end of June, May and April, respectively.

The investment level had fallen to an over 15-year-low of Rs 48,006 crore at the end of March amid significant volatility in broader markets on concerns over the coronavirus-triggered crisis.

Of the total Rs 74,027 crore invested through the route till August, Rs 62,811 crore was invested in equities, Rs 10,677 crore in debt, Rs 338 crore in the hybrid securities and Rs 202 crore in the derivatives segment.

Besides, assets under the custody of FPIs too increased to Rs 33.18 lakh crore in August-end from Rs 31.68 lakh crore in July-end.

Meanwhile, FPIs pumped in a staggering Rs 49,900 crore in the capital market in August after putting in over Rs 3,300 crore in the preceding month.