In anticipation of a stable Government taking control after the General Elections, foreign investments in the Indian equity markets have increased exponentially. As per the data released by Securities Exchange Board of India (Sebi), investments into Indian market through participatory notes (P-Notes) surged to the highest level in nearly three years to Rs 2.07 lakh crore or over $ 34 billion in the month of March alone.
According to the data released, the total value of P-Note investments in Indian markets including equity, debt and derivatives rose to Rs2,07,639 crore at the end of March from Rs1,72,738 crore during February. This was the highest level since May 2011, when the cumulative value of such investments stood at Rs2,11,199 crore.
P-Notes are the most preferred route which high net worth individuals (HNI) and large foreign hedge funds use to invest in the Indian markets. P-Notes allow foreign funds and HNIs to invest in Indian markets through registered Foreign Institutional Investors (FIIs), while saving on time and costs associated with direct registrations.
As per market experts, investment into equity market through P-Notes have been rising in the past few months mainly on hopes of a stable government after the ongoing General Elections. Also, stability in the rupee value against dollar has made investments in the Indian markets more attractive, experts added.
P-Notes issued for derivative transactions stood at Rs1.36 lakh crore as on March 31, 2014. The quantum of FII investments through P-Notes grew to 13 per cent in March from 11.7 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 rally during a few months in 2007. FIIs, the key drivers of Indian markets, pumped in Rs20,077 crore in the Indian stock market.