P-Notes investment at a 33-month high in Feb

Investments via participatory notes (P-Notes) rose to a 33-month high at ₹91,658 crore (over $12 billion) in February, according to data released by SEBI.

According to experts, rise in foreign portfolio investors’ participation through offshore derivative instruments vindicates the growing confidence of overseas investors in domestic markets.

In 2020, the instruments saw a near 30 per cent growth in value.

The P-Notes include investments in equity, derivatives, debt and other hybrid instruments. Majority of the investments is in the equity space. P-Notes are receipts issued by FPIs against the cash they receive for stocks purchased on behalf of clients. Such P-Note clients are not directly registered in India. As per February data, the value of P-Notes is the highest since May 2018, which saw a peak of ₹93,497 crore.

India has been trying to clamp down on the use of P-Notes in the derivative segment since 2007 since the ultimate beneficiary of these instruments is difficult to trace.

P-Notes became infamous for their use by tax evaders and hoarders of black money.

SEBI has not banned new issuances of these instruments by FPIs, fearing a massive market fall. P-Notes — also known as offshore derivative instruments — became popular between 2005 and 2007.

SEBI has asked FPIs to directly register with it. But P-Notes continue to be in vogue from ‘benami’ investors who are using FPI as a vehicle in Mauritius, Singapore, Luxembourg and other tax havens.

FPI registrations up

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 ₹42 lakh crore (over $55 billion).

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