FII investment via P-Notes rises to 6-year high of $37b in June

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Investments into Indian shares through participatory notes (P-Notes), a preferred route for overseas HNIs and hedge funds, surged to the highest level in more than six years at Rs 2.24 lakh crore (about USD 37 billion) in June.

According to the data released by the Securities and Exchange Board of India (Sebi), the total value of P-Note investments in Indian markets (equity, debt and derivatives) rose to Rs 2,24,248 crore at the end of June from Rs 2,11,740 crore in the preceding month.

This is the highest since May 2008, when the cumulative value of such investments stood at Rs 2,34,933 crore.

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

According to market analysts, investment into the equity market via P-Notes had been rising in the past few months mainly on hopes of a stable government.

It shot up in May post the general election results, primarily on the new government's promise to revive economic growth and the momentum continued in June.

P-Note investments in Indian markets have climbed from Rs 1.63 lakh crore in January to Rs 2.24 lakh crore in June.

Besides, the value of P-Notes issued with derivatives as underlying, stood at Rs 1.6 lakh crore as on June 30, 2014.

The quantum of FII investments through P-Notes grew to 12 per cent in June from 11.7 per cent in the previous month.

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

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

FIIs, the key drivers of Indian markets, pumped in nearly Rs 31,000 crore in the Indian stock market in June.

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