P-Notes and Hot Money

P-Notes and Hot Money

SEBI chief recently noted that  rise in the value of investments via P-Notes into Indian markets in 2020 and so far this calendar year is “not substantial enough” to warrant a concern.

Concept:

What are P-Notes?

• P-notes are issued by registered foreign portfolio investors (FPIs) to overseas investors who wish to be part of the Indian stock market without registering themselves directly.
• They, however, need to go through a due diligence process.

Why there were concerns?

SEBI was concerned about P-notes because it is not possible to know who owns the underlying securities and hedge funds acting through P-notes might therefore cause volatility in the Indian markets

Why it’s not a big concern?

Participatory Notes (P-Notes), which are seen as hot money instruments, are not an issue because the inflow via this route is miniscule to the level of the net overall foreign portfolio investments into the Indian markets this fiscal.

FPIs’ total Assets Under Management in India currently exceed $55 billion and P-Notes account for less than 2 per cent. Nearly a third of the FPI flows into India originate from three jurisdictions — Luxembourg, Singapore and Mauritius

SEBI has already put in place a strong regulatory framework with stringent KYC norms for the FPIs

KYC norms ‘in place’ for FPIs

About 10,000 FPIs are registered with SEBI.

There are proper regulations and KYC norms are in place.

It may be recalled that SEBI had in September 2019 notified new FPI regulations to ease the regime for investments

by FPIs. The new rules replaced the SEBI (Foreign Portfolio Investors) Regulations, 2014