Investment through Participatory Notes (P-Notes) into India’s capital market slipped to over Rs. 2.54 lakh crore (about USD 38.6 billion) at the end of November from the preceding month. P Notes, mostly used by overseas HNIs (High Net Worth Individuals), hedge funds and other foreign institutions, allow such investors to invest in Indian markets through registered foreign institutional investors (FIIs).

This saves time and cost for them, but the flip side is that the route can also be used for round tripping of black money. According to Sebi data, total value of P Notes investment in Indian markets (equity, debt and derivatives) declined to Rs. 2,54,600 crore at November-end, from Rs. 2,58,287 crore in the previous month. In September, investment stood at Rs. 2,53,875 crore through this route.

The total outstanding value of P Notes witnessed a steady rise since January and the momentum continued till March. However, investments through this route registered a drop in April, but hit a seven year high in May. The inflows slipped in the subsequent three months (June-August) but marginally rose in September and October and again fell in November.

The drop in investment via P-Notes during June-August comes amid Supreme Court-appointed Special Investigation Team (SIT) on black money asking Sebi to review its regulations on participatory notes to help identify the end users of these instruments. However, the government later said it has no intention of banning this financial instrument overnight.

Earlier this month, Minister of State for Finance Jayant Sinha had said that current regulatory framework on P-Notes is strict and robust hinting that there may not be any change required in the rules at the moment.