TAG: GS 3: ECONOMY
THE CONTEXT: Investments through Participatory Notes (P-Notes) in the Indian capital markets witnessed a substantial rise, reaching ₹1.31 lakh crore by the end of November.
EXPLANATION:
- This surge followed a decline in the previous month and was attributed to the robust performance of the domestic market amidst stable macroeconomic conditions.
- Since March, P-notes investments had shown a steady upward trajectory, reflecting stable domestic macroeconomic factors against a backdrop of global uncertainty.
- The data encompasses investments in Indian equity, debt, and hybrid securities through P-notes.
Participatory Notes
- P-notes are instruments issued by registered Foreign Portfolio Investors (FPIs) to overseas investors who seek exposure to the Indian stock market without direct registration.
- However, investors utilizing P-notes are required to undergo a due diligence process.
- As per the Securities and Exchange Board of India (SEBI) data, P-note investments in Indian markets (equity, debt, and hybrid securities) reached ₹1,31,664 crore by November’s conclusion, showcasing an increase from ₹1,26,320 crore recorded in October.
- The growth in P-notes typically correlates with trends in Foreign Portfolio Investments (FPIs).
- In times of global environmental risk, investments through P-notes tend to rise, and conversely, they decrease in more stable environments.
Factors Influencing the Surge
- Experts suggested that the decline in U.S. Treasury bond yields could have prompted Foreign Portfolio Investors (FPIs) to redirect their focus to the Indian market in pursuit of better returns.
- Additionally, the attraction of Initial Public Offerings (IPOs) might have lured foreign investors back into the Indian market.
Previous Highs and Recent Trends
- Prior to this recent surge, investments through P-notes hit a six-year peak at ₹1,33,284 crore by September-end.
- This marked the highest level since July 2017 when P-notes investments stood at ₹1.35 lakh crore, indicating a positive and upward trend in P-notes utilization.
Conclusion: Impact and Future Implications
- The resurgence in P-notes investments signifies increased confidence among foreign investors in the Indian market’s potential.
- This trend, coupled with factors such as declining bond yields and attractive IPO listings, suggests a favourable outlook for foreign investment inflows into India’s capital markets.
- The flexibility and appeal of P-notes continue to play a significant role in facilitating overseas investor participation in India’s financial landscape.
