Assets under custody of overseas investors in the Indian stock market, including those held through participatory notes, has fallen to an eight-month low of Rs 12.93 lakh crore ($206 billion).

According to the latest data released by the Securities and Exchange Board of India (SEBI), the total Assets under custody (AUC) of Foreign Institutional Investors (FIIs) in Indian equities declined by about Rs 44,000 crore to Rs 12.93 lakh crore as on July 31, 2013.

This is the lowest level of AUC of FIIs since December 2012, when they held Rs 13.35 lakh crore.

Overall, FIIs’ exposure to Indian equities through the participatory notes (P-notes) route soared to Rs 1.48 lakh crore in July after hitting an 11-month low of Rs 1.47 lakh crore in June.

P-Notes, mostly used by overseas HNIs (High Networth Individuals), hedge funds and other foreign institutions, allow them to invest in Indian markets through registered FIIs, while saving on time and costs associated with direct registrations.

However, the value of P-Notes issued with derivatives as underlying, declined to Rs 94,814 crore at July-end from Rs 99,763 crore in the preceding month.

The July’s figure also marked the lowest level of P-Notes on equity and debt in the last eight months.

Moreover, the quantum of FIIs investments through P-Notes increased to 11.45 per cent in July from 10.93 per cent in the preceding month.

Till a few years ago, P-Notes used to account for more than 50 per cent of total FII investments, but their share has fallen after SEBI tightened disclosure and other regulations for such investments.

The P-Notes have been accounting for mostly 15-20 per cent of total FII holdings in India since 2009, while it used to be 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 for a few months in 2007.

FIIs, the key drivers of Indian markets, pulled out over Rs 6,000 crore (around $1 billion) from the Indian stock market in July. Additionally, FIIs withdrew more than Rs 12,000 crore ($2 billion) from the debt market last month.