Investment via participatory notes (P-notes) in Indian markets fell to Rs 88,398 crore month-on-month in February due to the markets’ higher valuation, representing the third monthly decline in the investment level. The trend of investing through the route had been continuously increasing since July 2022 due to a slump in commodities prices and Indian equity markets’ relative outperformance. Market experts have noted that Indian markets are expensive compared to other emerging markets, making it a good opportunity for Foreign Portfolio Investors (FPIs) to book their profits and search for cheaper valuations elsewhere.

P-notes investment declines to Rs 88,398 cr in FebiStock
Investment in the Indian capital markets through participatory notes dropped to Rs 88,398 crore month-on-month in February amid higher valuation of domestic markets. This was the third consecutive monthly decline in the investment level. Before this, investment through the route had been on an increasing trend since July 2022 because of a slump in the oil and other commodities prices and the relative outperformance of Indian equity markets.

Participatory notes (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 Sebi data, the value of P-note investments in Indian markets — equity, debt, and hybrid securities — stood at Rs 88,398 crore at the end of February compared to Rs 91,469 crore in January-end.

Prior to that, the investment level through the route was Rs 96,292 crore at the end of December 2022 and Rs 99,335 crore at the end of November 2022. It was Rs 97,784 crore at October-end last year.

Investment via P-notes normally moves in line with FPI investment. When there is a global risk to the environment, investment through this route increases and vice-versa.

“Last several months have seen a steady decline in investments through P-notes. This is because Foreign Portfolio Investment has seen outflows, particularly since the beginning of 2023. P-notes normally follow the trend in FPI flows. The trend through P-note investment may increase in April since FPI inflows have started looking up,” VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.

Market experts said FPIs are finding Indian markets as expensive compared to other emerging markets. Indian market could probably be the only one where they would have made profits last year. Now, it is a good opportunity for them to book profits and look for cheaper valuations elsewhere.

Of the total Rs 88,398 crore invested through this route till February this year, Rs 78,427 crore was invested in equities, Rs 9,851 crore in debt and Rs 119 crore in hybrid securities.

Meanwhile, FPIs pulled out Rs 5,294 crore from the Indian equities in February and Rs 28,852 crore in January.

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