Investments through participatory notes (P-notes) into Indian capital markets- equity, debt, and derivatives have plunged to over nine-year low of Rs 80,341 crore till July 2018-end. This is the lowest level since April 2009 when the cumulative value of such investments stood at Rs 72,314 crore.
The decline comes amid stringent norms put in place by market watchdog Securitas Exchange Board of India (SEBI) to check misuse of these instruments. In July 2017, Sebi had notified stricter norms stipulating fee of US $1,000 on each instrument to check any misuse for channelising black money. It had also prohibited FPIs from issuing such notes where underlying asset is derivative, except those which are used for hedging purposes. Earlier in April 2017, SEBI also had barred resident Indians, NRIs and entities owned by them from making investment through P-notes.
Participatory Notes (P-notes)
P-notes are offshore/overseas derivative instruments (ODIs) issued by registered foreign portfolio investors (FPIs) to overseas investors who wish to be part of the Indian stock market without registering themselves directly. They, however, need to go through due diligence process. P-Notes are not used within the country but are mainly used outside India for making investments in shares listed in the Indian stock market. SEBI had permitted FIIS to participate and register in the Indian stock market in 1992. Earlier, investing through P-Notes is very simple and is very popular amongst FPIs, FIIs.