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Participatory notes (P-notes), the ‘hot money’ instrument that India has been trying to ban since 2007, are still widely used for investing in domestic stock markets. Data show that ₹87,132 crore ($11.6 billion approx) worth of P-note positions were outstanding as of December 2020.
Over 2020, the instruments have seen a near 30 per cent growth in value. The current value of P-notes is at a 31-month high and includes investments in equity, derivatives, debt and other hybrid instruments. P-notes are receipts issued by foreign portfolio investors (FPIs) against the cash they receive for stocks purchased on behalf of clients. Such P-note clients are not directly registered in India. Per December data, the value of P-notes is the highest since May 2018, which saw a peak of ₹93,497 crore.
Surprising trend
Experts say it is surprising there are still investors using P-notes for large investments, since FPI registrations in India have crossed the 10,000 mark. P-note investments are just around 2 per cent of the total assets under management of FPIs, which stood at more than ₹41.82-lakh crore ($55 billion).
There is a shadow over P-notes as their ultimate beneficiaries are almost impossible to trace because they are mainly registered in tax havens such as Mauritius and Cayman Islands.
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