P-Notes investment hits 6 year high at $35b in May

Investments into Indian shares through participatory notes (P-Notes), a preferred route for overseas HNIs and hedge funds, surged to the highest level in six years at Rs 2.12 lakh crore (over $35 billion) in May.

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 2,11,740 crore at the end of May from Rs 1,87,486 crore in the preceding month.

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

P-Notes, 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 registrations.

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, business-friendly government. It shot up in May, post the general election results, primarily on the new government's promise to revive economic growth.

P-Note investments in Indian markets climbed from Rs 1.63 lakh crore in January to Rs 2.12 lakh crore in May.

Besides, the value of P-Notes issued with derivatives as underlying, stood at Rs 1.45 lakh crore as on May 31, 2014.

The quantum of FII investments through P-Notes grew to 12% in May from 11.7% in the previous month.

Till a few years ago, P-Notes used to account for more than 50% 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% of the total FII holdings in India since 2009, while it used to be much higher - in the range of 25% to 40% - in 2008. It was as high as over 50% at the peak of Indian stock market bull run during a few months in 2007.

FIIs, the key drivers of Indian markets, pumped in over Rs 14,000 crore in the Indian stock market in May.

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