The latest data from the Securities and Exchange Board of India (SEBI) has shown a rising trend in the value of participatory note (P-note) investments in the Indian capital markets. As of July 2020, these investments reached Rs. 63,288 crore, marking the fourth consecutive month of increase. This article delves into the details of this notable financial uptick.
Key Points About the Investments
The total investment through P-notes until July was at Rs. 63,288 crore. A significant portion of this amount, Rs 52,356 crore, was invested in equities, while Rs.10,429 crore was put into debt. On top of that, Rs. 250 crore went into hybrid securities and Rs. 190 crore into the derivatives segment. Derivatives are financial instruments that derive their value from underlying assets.
Monthly Investment Rise
The P-note investments observed a steady upswing on a monthly basis. The figures stood at Rs 62,138 crore in June 2020, Rs 60,027 crore in May, and Rs 57,100 crore in April. However, in March 2020, the investment level had dipped to a 15-year-low of Rs 48,006 crore, which was the lowest since October 2004 when the total P-note investments were at Rs 44,586 crore. This dip in March was largely due to the volatility in broader markets owing to concerns over the COVID-19 crisis.
What Are Participatory Notes?
Participatory notes, often referred to as P-notes, are Offshore Derivative Instruments (ODIs) issued by registered Foreign Portfolio Investors (FPIs) to overseas investors. Such investors seek to partake in the Indian stock markets without direct registration. P-notes have Indian stocks as their underlying assets. While P-note holders enjoy less stringent registration requirements, they must undergo a thorough due diligence process under the SEBI.
The Role of SEBI and FPIs
SEBI, which was established in 1992 as per the SEBI Act, 1992, has the key role of protecting the interests of investors in securities. It also promotes the development of, and regulates the securities market. Meanwhile, FPIs are non-residents who invest in Indian securities such as shares, government bonds, and corporate bonds among others. The SEBI (Foreign Portfolio Investors) Regulations, 2019 guide the operations of FPIs. Unlike Foreign Direct Investment (FDI), foreign portfolio investment doesn’t confer direct ownership of a company’s assets to the investor.
Understanding Capital Markets
Financial markets are classified based on the maturity of the financial instruments traded in them. Instruments with a maturity of less than one year are traded in the money market, including items like Treasury Bills and Commercial Papers. Instruments with longer maturity, such as shares and debentures, are traded in the capital market.
