Investments through participatory notes (P-notes) in the Indian capital market surged to Rs 78,686 crore at October-end, making it the highest level in 14 months. The maximum part of it was invested in equities, followed by debt and hybrid securities.
Context
- Investments through participatory notes (P-notes) in the Indian capital market surged to Rs 78,686 crore at October-end, making it the highest level in 14 months. The maximum part of it was invested in equities, followed by debt and hybrid securities.
What are reasons behind the surge?
- The Continued government efforts to increase inflows
- enhanced global liquidity
- efforts from PLI (production-linked incentive)
- scheme such as Aatmanirbhar Bharat
- and import substitution
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P-notes
- A participatory note, commonly known as a P-note or PN, is an instrument issued by a registered foreign institutional investor (FII) to an overseas investor who wishes to invest in Indian stock markets.
- Investors do not need to register themselves with the market regulator, the Securities and Exchange Board of India (SEBI).
- SEBI permitted foreign institutional investors to register and participate in the Indian stock market in 1992.
- These notes are a unique Indian invention started in 2000 by SEBI.
- They're also referred to as offshore derivative instruments as they are not used within the country; they are used outside of India for making investments in stocks listed on Indian stock markets
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What are the drawbacks with P-notes?
- Anonymity
- Tax evasions
- Money laundering
Regulation of P-notes
- In 2007, SEBI proposed curbs on participatory notes which accounted for roughly 50% of FII investment in 2007.
- SEBI was concerned about P-notes because it is not possible to know who owns the underlying securities and hedge funds acting through P-notes might therefore cause volatility in the Indian markets.
