Investment via P-notes hits 3-year high at $34 bn in Mar

Investment in stock markets through participatory notes (P- Notes), a preferred route for overseas high net worth individuals and hedge funds, surged to a three-year high of Rs 2.07 lakh crore ($34 billion) in March, according to data released by Securities and Exchange Board of India.

The total value of P- Note investment in domestic markets (equity, debt and derivatives) rose to Rs 2,07,639 crore at the end of March from Rs 1,72,738 crore in the preceding month. This was the highest level since May 2011, when the cumulative value of such investment stood at Rs 2,11,199 crore.

The quantum of investment by foreign institutional investors (FIIs) through P- Notes grew to 13 per cent in March from 11.7 per cent in the previous month. P- Notes used to account for a major chunk of FII in recent years, but their share has fallen after Sebi tightened the disclosure norms.

P- Notes allow foreign investors enter markets through registered FIIs and exempts them from getting registered directly with Sebi. This saves on time and costs for investors but the flip side is that the route can also be used for round- tripping of black money. The government is concerned over the increase in P- Note investment as some of them could be used to channel black money into the campaigning in the Lok Sabha elections.

An income tax official told Mail Today that P-Notes enable investors to keep their identity anonymous. P- Notes can be freely traded and easily transferred without disclosing identity of actual beneficiaries. The onus of knowing the ultimate beneficiary of P- Notes is on FIIs, the official added. There have been instances where FIIs have failed to do this as there are several reissues of P- notes, which makes it difficult to track the ultimate beneficiary. This was also highlighted in a white paper tabled in Parliament, the official further added. The paper also mentions that since P- Notes are issued from offshore financial centres like Cayman Islands and British Virgin Islands, it is possible to hide identity of ultimate beneficiaries through multiple layers.

Courtesy: Mail Today