P-notes piques again amid enhanced disclosure norms

After rising for seven consecutive months, investments in the Indian capital markets through P-notes dropped to ₹1.26 lakh crore in October 2023. However, the value of investment as of November-end improved slightly to ₹1.32 lakh crore, data collated from SEBI showed. In fact, the October tally was the highest level since May 2017.

Market participants are of the view that the enhanced disclosure norms would largely impact offshore funds that have issued P-notes by aggregating many underlying investors.

“India-centric funds can't escape from disclosing the ultimate beneficiary, but it is too small. However, these small things aggregate on different players, and it becomes a sort of overhang,” observed Samir Arora, Founder & Fund Manager, Helios Capital, in an interaction with CNBC-TV18.

P-notes account for about 2.2% of the total Assets Under Custody (AUC) of FPIs, which stood at ₹60.80 lakh crore at the end of November 2023. In fact, the share of P-notes in total AUM had been less than 2% in the whole of 2022 and the first five months of 2023. However, the current tally is much below the 35% seen in January 2008.

According to SEBI, the assets under management of the high-risk category of foreign investors are estimated to be around ₹2.6 lakh crore as of March 2023, which is about 6% of the total FPI AUM and 1% of the country’s market capitalization.

Participatory notes (P-notes) are issued by registered foreign portfolio investors (FPIs) to overseas investors who wish to be part of the Indian stock market without registering themselves directly.