Inflow via P-notes at 10-month high on QE taper delay
Oct 21 2013 , Mumbai
FIIs turn bullish in cash and derivative markets as well
According to Sebi, investment through P-notes, which allow unregistered foreign investors to take exposure to Indian equities indirectly, touched a 10-month high of Rs 1,71,154 crore in September. This is the highest flow since November 2012, when such investment stood at Rs 1,77,164 crore.
Foreign investors typically register with market regulator Sebi to invest in the local market. Big India-registered foreign brokerages such as Morgan Stanley, JP Morgan, among others, help unregistered offshore investors — such as hedge funds, offshore ETFs (exchange-traded funds) and wealthy individual investors — to take exposure to the Indian market through offshore derivative instruments (ODIs), which have local stocks as underlying.
Sebi data show the notional value of P-notes for September was higher by Rs 6,337 crore from Rs 1,64,817 crore in August. The notional value of P-notes on equity and debt, excluding derivatives, stood at Rs 1,06,527 crore for the month, which is highest since May this year.
“FIIs have become very bullish on India. They have been buying stocks from cash market, the index formation and P-notes. While FIIs are bullish, domestic investors are trimming their positions,” said Siddharth Bhamre of Angel Broking.
Bhamre expects the market to rally on short covering if Nifty breaches the 6,300-mark. On Monday, the 50-stock index closed at 6,204.95, its highest level since November 2010.
Another market official said P-note investments are ‘hot money’ and can flee at the drop of a hat, forcing foreign brokerages that issue such ODIs to sell stocks in the local market. FIIs were net buyers in the cash market for the 12th consecutive session on Monday, provisional data from the stock exchanges showed.
FIIs have invested $1.4 billion (Rs 8,609.40 crore) in Indian stocks so far this month, raising their total investment through the direct route for 2013 to $15 billion (Rs 81,897.70 crore).
“With the Fed taper postponed, global liquidity is flocking to high-beta space such as India,” Bhamre said.
As a percentage, the share of P-notes in total FII investment declined in September, as overseas investors put more money through the direct route.
As per the Sebi data, the notional value of P-notes on equity, debt and derivatives stood at 13.06 per cent of their total assets in Indian stocks, down from 13.27 per cent in August.
Similarly, the notional value of P-notes on equity and debt, excluding derivatives, stood at 8.13 per cent of their total assets, down from 8.23 per cent.
Total FII assets in Indian stocks rose to Rs 1,310,194 crore, up by Rs 6,8040 crore, in September from Rs 1,242,154 crore in August.