Investments into Indian shares through participatory notes (P-Notes), a preferred route for High Networth Individuals (HNIs) and hedge funds from abroad, surged to the highest level in three months at around Rs.1.73 lakh crore (about $28 billion) in February.
According to the latest data released by the Securities and Exchange Board of India (SEBI), the total value of P-Note investments in Indian markets (equity, debt and derivatives) rose to Rs.1,72,738 crore at the end of February from Rs.1,63,348 crore in the preceding month.
This was the highest level since December 2013, when the cumulative value of such investments stood at Rs.1,67,566 crore.
P-Notes, mostly used by overseas HNIs, hedge funds and other foreign institutions, allow them to invest in Indian markets through registered foreign institutional investors (FIIs), while saving on time and costs associated with direct registrations.
According to market analysts, investment into equity market via P-Notes have been rising in the past few months mainly on hopes of a stable government after general elections starting next month.
“It can also be attributed to moderation in our current account deficit as well as stability in the rupee value against the U.S. dollar,” an analyst said.
Besides, the value of P-Notes issued with derivatives as underlying, stood at Rs.1.13 lakh crore as on February 28, 2014.
The quantum of FII investments through P-Notes grew 11.7 per cent in February from 11.5 per cent in the previous month.
Till a few years ago, P-Notes used to account for more than 50 per cent of the total FII investments, but their share has fallen after SEBI tightened the disclosure norms and other regulations for such investments.
P-Notes have been accounting for mostly 15-20 per cent of the total FII holdings in India since 2009, while it used to be much higher, in the range of 25-40 per cent, in 2008. It was as high as over 50 per cent at the peak of Indian stock market bull run during a few months in 2007.
FIIs, the key drivers of Indian markets, pumped in around Rs.1,400 crore ($229 million) in the Indian equity market last month. Also, they poured in Rs.11,337 crore ($1.82 billion) in the debt market in February.