The investment of high networth investors and foreign hedge funds in India through participatory notes (P-Notes) touched a 10-month high of Rs 1.71 lakh crore (about $28 billion) in September. This was despite FIIs withdrawing over Rs 5,600 crore ($910 million) from the debt market in September.
The current level of P-Note investment is close to all-time high of Rs 1.77 lakh crore recorded in November 2012.
Rise in dollar flow
The increased dollar flow in September helped reverse the sharp depreciation of rupee which recovered from an all-time low of 68.80 in August to 62-level last month. Foreign investments into Indian markets through P-Notes were at Rs 1.65 lakh crore in August.
Paras Bothra, Vice-President (Equity Research), Ashika Stock Broking, said the foreign fund flow into India will continue with fear of quantitative easing by the US being postponed.
“A huge chunk of exchange traded fund dedicated to emerging markets is flowing into India as they expect the Indian economy to bounce back in the near future. Besides, the Government has also encouraged foreign investment into the country,” he added.
High networth investors and hedge funds consider investment through P-Notes as cost-effective as it does not involve separate registration with the market regulator SEBI. P-Notes are issued by foreign institutional investors with underlying investment in equity, debt and derivatives.
Keen to attract FIIs
Till a few years back, P-Notes used to account for over 50 per cent of total foreign institutional investor investments, but it fell sharply after SEBI tightened disclosure norms and other regulations for such investments. SEBI is looking to attract more investment from FIIs according to suggestions made by the high-level Chandrasekhar Committee.
To simplify norms governing foreign institutional investors’ investment in India, the market regulator recently replaced SEBI Foreign Institutional Investors (FII) Regulations with SEBI Foreign Portfolio Investors Regulations, 2013.
Under the new system, the two class of investors — FIIs and qualified foreign investors — was merged into a single investor class and called Foreign Portfolio Investors.
The FPIs were allowed to register with designated depository participants instead of registering with SEBI.