Once a popular investment tool with foreign investors, participatory notes (P-Notes) apppear to be losing much of their sheen following the continuous tightening of rules by the regulator Securities and Exchange Board of India (Sebi). The product has become less attractive, market players say, because the new rules have resulted in costs going up.
Investments in Indian capital markets via P-notes declined to R1.79 lakh crore in November 2016, the lowest in three years. Data from SEBI revealed that in November 2007, the share of P-notes accounted about 45% of the total foreign portfolio investments — across debt, equity and derivatives. By end 2016 this amount had fallen to single digits at 7.5%.