Participatory Note Investments Decline in Indian Markets

Participatory notes (P-notes) are financial instruments that allow overseas investors to partake in Indian stock markets without directly registering. However, they must pass a due diligence process. P-notes had witnessed a steady rise since March, indicating confidence in the Indian economy amidst global economic uncertainties. Nonetheless, there has been a reversal in the trend with P-note investments falling to Rs 1.26 lakh crore by the end of October, reflecting the first decline after a seven-month uptrend.

A Look at the Numbers

The Securities and Exchange Board of India (SEBI) cited that investments in P-notes reached Rs 1,26,320 crore in October, a decrease from a six-year peak of Rs 1,33,284 crore in September. This decline is notable as it follows a period of continuous growth since March, with investments in the preceding months being significantly lower, such as Rs 91,469 crore in January, gradually increasing to over Rs 1.28 lakh crore in August.

Breaking Down the Investment

The bulk of the P-note investments, amounting to Rs 1.18 lakh crore, were allocated to equities, while debt and hybrid securities accounted for the remaining Rs 8,055 crore and Rs 385 crore, respectively. Additionally, the custody of foreign portfolio investments dipped to Rs 56.8 lakh crore at October's end, a fall from Rs 58.45 lakh crore the previous month. Moreover, Foreign Portfolio Investors (FPIs) retracted Rs 24,500 crore from Indian equities in October, but showed a contrasting behavior in the debt market, infusing Rs 6,400 crore.

Market Reactions and Influences

Analysts have linked the equity pullback to various factors such as the increase in US treasury yields and geopolitical tensions, like the conflict between Israel and Hamas, contributing to a risk-off sentiment among investors. It is clear that both global events and domestic dynamics have a strong influence on the investment patterns through P-notes in the Indian market.

P-notes, Investment, SEBI