P-Notes are issued by registered Foreign Portfolio Investors (FPIs) to foreign investors who wish to participate in the Indian stock market without having to register directly
Investments in the Indian capital market through P-notes fell to ₹87,989 crore at the end of January and experts believe foreign investors will maintain their negative stance amid the Ukraine crisis.
P-Notes are issued by registered Foreign Portfolio Investors (FPIs) to foreign investors who wish to participate in the Indian stock market without having to register directly. However, they must go through a due diligence process.
According to data from the Securities and Exchange Board of India (Sebi), the value of P-Note investments in Indian markets – equities, debt and hybrid securities – was £87,989 billion at the end of January compared to £95,501 billion at the end of December.
At the end of November, the investment level was ₹94,826 crore.
Of the total ₹87,989 billion invested through January 2022, 78,271 crore was invested in equities, 9,485 crore in debt and 232 crore in hybrid securities.
Abhay Agarwal, founder and fund manager at Piper Serica, a Sebi-registered PMS, said equity P-notes fell 7.8% in January, while Nifty posted a nearly flat return. This is in line with expectations as foreign investors were aggressive sellers throughout January, continuing the trend observed since October 2021.
After a net reduction of ₹6,677 billion, the value of equity P-notes has fallen to 78,271 crore, the level last seen in January 2021. In the debt segment, too, there was a nearly 9% drop in the value of P-notes.
“We expect the value of P-Notes to post another negative number for the month of February as FPIs continued to be aggressive sellers and the Nifty posted a 3% decline for the month,” he said.
With Omicron’s fears largely dispelled, investors hoped for a speedy recovery in the global economy. However, with the US Federal Reserve adopting a “faster and earlier” stance on rate hikes, investors have across the board reduced their holdings of risky assets, Mr Agarwal said.
“We’ve seen global fund cash holdings jump to 5.3% from 5% a month ago. The geopolitical situation in Ukraine has put further pressure on already nervous global investors. We expect the FPIs to continue their net negative stance until there is clarity on an end to the situation in Ukraine. The only bright spot is LIC’s IPO,” he noted.
Assets under custody by FPIs fell to 52.12 lakh crore in January from 52.72 lakh crore at the end of December.
Piper Serica’s Mr Agarwal said the Indian economy continues to open up quickly.
“Quarter earnings numbers have been broadly consistent and the overall market valuation has narrowed to historical territory. We expect to see significant FPI inflows in the current calendar year, but it’s difficult to predict when that will happen,” he added.