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Participatory Notes Dropped To Rs 86,706 Crore Till May-End, 2022

Participatory Notes Dropped To Rs 86,706 Crore Till May-End, 2022:

Investment in the Indian capital markets through Participatory notes (P-notes) dropped to Rs 86,706 crore till May-end, 2022.

  • However, according to experts, foreign investors will reverse their selling stance and return to the country’s equities in the coming 1-2 quarters.
  • In line with a decline in P-note investment, the assets under the custody of Foreign Portfolio Investors (FPIs) dropped 5% to Rs 48.23 trillion end-May, 2022 from Rs 50.74 trillion end-April,2022.
  • This was the eighth consecutive month of net pull-out by FPIs from equities.

Participatory Notes:

  • 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 Security and Exchange Board of India (SEBI).

Reasons for Declining P- Notes:

  • There is still uncertainty around inflation levels and the US Federal Reserve’s (Fed’s) actions.
  • Decline in P-Notes is being attributed due to the tightening of monetary policy by the US Fed which has been on a rate hiking spree to control inflation.
  • Other central banks, including in Britain and the Eurozone, are following suit.
  • Currency correction has happened to a large extent.
  • A correction is a price rebound which can be observed after every trend impulse. After a correction takes place, the price returns to the trend.
  • A correction on the currency market takes place due to the overselling or overbuying of instruments at the current moment in time.
  • A large part of this reduction to market correction in equity and debt portfolios.