Decline in Investments Through P-Notes | 04 Mar 2022

Why in News

According to Securities and Exchange Board of India (SEBI) data, the value of Participatory-Note (P-Notes) investments in Indian markets have declined in jan 2022 in comparison to dec 2021.

What are the Reasons for Declining P-Note?

  • This is in line with expectations as foreign investors were aggressive sellers throughout January 2022 continuing the trend seen since October 2021.
  • With Omicron fears largely behind, investors were hopeful of a rapid recovery in the global economy. However, with the US Federal Reserve taking a 'faster and sooner' stance on rate hikes investors have been cutting their holdings in risk assets across the board
  • The Ukraine geopolitical situation has put further pressure on already scared global investors. It is expected that FPIs (Foreign Portfolio Investors) will continue their net negative stance till clarity emerges on an end to the Ukraine situation.

What is a Participatory Note?

  • P-notes are Offshore Derivative Instruments (ODIs) issued by registered Foreign Portfolio Investors (FPIs) to overseas investors who wish to be a part of the Indian stock markets without registering themselves directly.
    • P-notes have Indian stocks as their underlying assets.
    • FPIs are non-residents who invest in Indian securities like shares, government bonds, corporate bonds, etc.
  • Though P-note holders have less stringent registration requirements, they have to go through a proper due diligence process of the SEBI.

What is Foreign Portfolio Investment?

  • FPI involves holding financial assets from a country outside of the investor's own.
  • Holdings can include stocks, GDRs (Global Depository Receipt), bonds, mutual funds, and exchange traded funds.
    • A GDR is a bank certificate issued in more than one country for shares in a foreign company
  • Along with FDI (Foregn Direct Investment), FPI is one of the common ways for investors to participate in an overseas economy, especially retail investors.
  • Unlike FDI, FPI consists of passive ownership, investors have no control over ventures or direct ownership of property or a stake in a company.

Source: TH