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Buoyed by reform announcements initiated by the Government, the FII investments through Participatory Notes or P-Notes surged to a 8-month high in October at Rs 1.76 lakh crore, according to latest data provided by market regulator SEBI. This is the highest since February when the cumulative value of such investments in Indian markets including equity, debt and derivatives stood at Rs 1.83 lakh crore, the highest this year.
P-Notes are financial instruments used by investors or hedge funds that are not registered with the SEBI to invest in Indian securities. Indian-based brokerages buy India-based securities and then issue P-Notes to foreign investors. Any dividends or capital gains collected from the underlying securities go back to the investors.
Total value too rises
This investment category has also seen a rise in total value as a percentage of overall assets under custody of FIIs on a month-on-month basis to 14.4 per cent in October against the 12 per cent in September. This comes close on the heels of the 16.4 per cent in March, the highest this year.
According to the data provide by SEBI, the investments in P-Note category saw a steady rise till March and started dipping thereafter following announcements by the Union Government for a proposed new taxation regime called General Anti-Avoidance Rule (GAAR) and retrospective taxation of offshore transactions.
However, according to Jaganaadham Thunuguntla, Strategist and Head of Research, SMC Global Securities, these negative overhangs on FII investments are a thing of the past now and the current positive outlook looks sustainable, given a few conditions.
“GAAR and retrospective taxation are a thing of the past now and is no longer an overhang affecting FII inflows. Positive reform announcements such as FDI in retail going through the Parliament have given confidence to FIIs to invest in India. However, the present uptrend would be sustainable going forward in 2013 only if we see implementation of all other announced reforms by the Government as well. These include the banking and insurance bills among others,” he added.
The net FII investments for 2012 so far stood at Rs 1.51 lakh crore.
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