Investment Via P-Notes Drops To INR 80,092 Cr In Jun; Volatility To Continue


Investment in the Indian capital markets through participatory notes (P-notes) declined to Rs 80,092 crore till June-end, making it the lowest level in 20 months, on aggressive rate hike by the US Federal Reserve. With the continued global uncertainty and volatility, experts believe that investment through P-notes will be volatile in the near future.

P-notes are issued by registered Foreign Portfolio Investors (FPIs) to overseas investors who wish to be a part of the Indian stock market without registering themselves directly. They, however, need to go through a due diligence process.

According to the Securities and Exchange Board of India (Sebi) data, the value of P-note investments in Indian markets — equity, debt, and hybrid securities — stood at Rs 80,092 crore at June-end compared to Rs 86,706 crore at May-end.

This was the lowest level since October 2020, when investment through the route was at Rs 78,686 crore. The June figure also marks the second consecutive monthly decline in investment numbers. Of the total Rs 80,092 crore invested through the route till June 2022, Rs 70,644 crore was invested in equities, Rs 9,355 crore in debt, and Rs 92 crore in hybrid securities.

In comparison, Rs 70,644 crore was invested in equities and Rs 9,355 crore in debt during May. Divam Sharma, founder at Green Portfolio, a portfolio management service provider, said the participation in equities has seen the lows of October 2020 whereas the AUC (assets under custody) had shown a low of April 2021.

“This drop is in line with the expectations and is similar to the slowdown in domestic mutual fund inflows, and FPIs flows as witnessed in the industry. The flight to safety after the US Fed hiked rates is the primary reason for last month’s slowdown,” Sonam Srivastava, Founder at Wright Research, an investment advisor, said.

“With a market recovery this month, July might be better than June. However, with the continued global uncertainty and volatility, we expect the P-Note investments to also be volatile in the near future,” she added.

According to Sharma, FPIs should begin pumping in money towards the end of this calendar year as Indian markets are available at lower valuation levels to their historical averages accompanied with a positive GDP outlook. The passive money coming to Indian markets should also begin at that time.

Meanwhile, foreign investors pulled out Indian shares worth Rs 50,203 crore in June — the highest net outflow in over two years — amid aggressive rate hike by the US Federal Reserve, elevated inflation and relatively higher valuation of domestic equities. This was also the ninth consecutive month of net withdrawal by FPIs from equities.

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