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Participatory Notes Investment Rise in India

22 February 20233 mins read by Angel One
Participatory Notes Investment Rise in India
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Capital market investment can take many forms, including P-note investment. It’s a financial instrument, which is issued to foreign investors by FPI investors to invest in Indian stock market. In March, India’s P-note investment dipped to 15 years low amid rising market volatility. However, in the following months of April and May, some of these investors returned to the market with their funds. At the end of May, P-notes investment in India stood at Rs 60,027 crore.  

P-notes stands for participatory notes. These are issued by registered foreign portfolio investors (FPIs) to other foreign investors, willing to invest in the Indian stock market without going through the process of registering themselves. In a report published by SEBI, the regulator disclosed that P-note participation has increased in all the segments of equity, debt, hybrid securities, and derivatives

Concerns over P-note investment

P-notes are used by foreign investors to invest in stock derivatives which has Indian stocks as underlying assets. It allows them to skip the registration process, which is placed by the government for FPI investors. It enables investors to stay anonymous while leverage profit by engaging in speculations. 

As an investment tool, P-notes raise a few concern for the government. Although it allows a quick capital flow to the market, regulators don’t really appreciate it for several reasons. It increases chances of money laundering, allows businesses to manipulate stock prices, and make it difficult for regulators to track unaccounted funds. It is the reason that time to time SEBI imposed stringent rules to regulate P-note investments. However, still, P-notes play a critical role in the Indian capital market. 

Implications of Return of P-note investors to India 

In the wake of nationwide lockdown following COVID-19 outbreak in India, P-note investment volume reduced significantly in 15 years. In March the value diminished to Rs 48,006. 

In May-end, the volume stood at Rs 60,027 crore with an investment volume of Rs 49,160 in stocks; Rs 10,106 crore and Rs 159 crore in debt and derivatives respectively. So, what does it imply? 

Rise of investments through participatory notes in India is due to the situation arising from CoronaVirus pandemic. COVID-19 has increased volatility in the broader market with rising concerns over pandemic-triggered recessions. In this condition, several FPI investors who aren’t licensed and don’t prefer to stay invested for a long-time may prefer to invest through P-notes, which doesn’t have any binding regulation. P-notes allow them the flexibility to stay invested as long as they want and withdraw quickly.


To help reduce P-note investment and more investors to register in the capital market, SEBI has significantly simplified FPI registration formalities. But due to specific taxation system, FPI investors are still exploring this route to invest without hassles. However, any P-note investor interested in investing in the capital market is required to complete due diligence. 

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