Friday, 12 Sep, 2025
By: Yash Gupte
Investment in the Indian capital markets via participation notes declined to Rs. 75,725 crore at the end of July, the lowest level in over two years, owing primarily to the US Fed's rapid rate hikes. This is also the third consecutive month that investment numbers have fallen.
Investment in the Indian capital markets via participation notes declined to Rs. 75,725 crore at the end of July, the lowest level in over two years, owing primarily to the US Fed's rapid rate hikes. This is also the third consecutive month that investment numbers have fallen. According to SEBI data, the value of preparatory note investments in Indian markets (equity, debt, and hybrid securities) were at Rs. 75,725 crore at the end of July, down from a 20-month low of Rs. 80,092 crore at the end of June. This was the lowest level since October 2020, when investment via this avenue totaled Rs. 78,686 crore.
Till July 2022, a total of Rs 75,725 crore was invested through the channel, with equities accounting for 66,050 crore, debt accounting for 9,592 crore, and hybrid securities accounting for 82 crore. In the previous month of June, Rs 70,644 crore was invested in equities and Rs 9,355 crore in debt. According to market experts like Amar Ranu, Head-Investment Products & Advisory, Anand Rathi Shares & Stock Brokers, the recent decrease in capital market investment via Preparatory notes is generally in line with global outflows from emerging markets, including India.
P-notes are Offshore Derivative Instruments (ODIs) issued by registered Foreign Portfolio Investors (FPIs) to foreign investors who want to participate in the Indian stock markets but do not want to register directly. The underlying assets of P-notes are Indian equities. Non-residents who invest in Indian securities such as stocks, government bonds, corporate bonds, and so on are known as foreign portfolio investors (FPIs). Though P-note holders face less strict registration requirements, they need to go through the Security and Exchange Board of India's due diligence process (SEBI). The covid-19 pandemic witnessed the rise in investment in Indian markets through the participatory notes during the lockdown. The pandemic had produced market instability, with growing anxiety of pandemic-induced recessions. In such circumstances, investors were suspicious of the entire long-term investment issue. In such a case, p-notes enabled investors to stay involved in the market for as long as they wanted and withdraw their funds swiftly.
The investments in the Indian capital markets through the participatory notes have been declining and have hit a new low in the month of July 2022 in last two years.
Source: Securities and Exchange Board of India
The investments stood at Rs. 1, 02,553 crore for the month of October 2021 which was highest in past one year. The investment through participatory notes has witnessed a continuous declining trend from the month of April 2022 as the investment stood at Rs. 90, 580 and it further declined to 86, 706 crore in may and in July it has hit a new low of Rs. 75, 725 crore. One of the major reasons behind this fall is that there are constant fears of sharp rate hikes by the US Federal Reserve which led to the US 10-year bond yields surging and ultimately making foreign investors skeptical of investing into India. But in spite of these trends, the market experts in India are optimistic about the future investments through participatory notes.
