Inflows via P-Notes decline to Rs87,979 cr in March

Investments in the Indian capital markets through participatory notes (P-notes) dropped to Rs87,979 crore as of March-end, with experts believing that foreign investors will continue to adopt a cautious stance.

"We will see some liquidity drying up from global markets over the coming months resulting in the continuation of pressure in P-notes participation for a few months. However, we believe that the India story is intact and the world's leading economies are looking at trade partnerships with us," said Divam Sharma, founder at Green Portfolio, a Sebi-registered portfolio management service provider.

P-notes are issued by registered Foreign Portfolio Investors (FPIs) to overseas investors who wish to be a part of the Indian stock market without registering themselves directly. They, however, need to go through a due diligence process. According to Securities and Exchange Board of India (Sebi) data, the value of P-note investments in Indian markets -- equity, debt, and hybrid securities -- stood at Rs 87,979 crore at March-end, compared to Rs 89,143 crore at the end of February. At the end of January, the investment level was Rs87,989 crore. Of the total Rs 87,979 crore invested through the route till March 2022, Rs 78,233 crore was invested in equities, Rs 9,593 crore in debt, and Rs 153 crore in hybrid securities. In comparison, Rs 79,747 crore was invested in equities in February and Rs 9,224 crore in debt.

"With fear around a high probability of a recession in the USA and an inevitable rate cycle reversal in India, the FPIs have shredded their positions in equities as well as debt in the month of March," Sharma added.

According to him, the positive side is that we are witnessing an undercurrent from domestic investors pumping in money to the extent FPI exits are happening. Recently, assets under management (AUM) of equity mutual funds crossed Rs 20 lakh crore. In contrast to the P-notes investment, the assets under the custody of FPIs rose to Rs 50.97 lakh crore in March-end from Rs 49.75 lakh crore in February-end. Meanwhile, FPIs pulled out a massive Rs 41,000 crore from the Indian equity market in March, making it the sixth consecutive monthly net outflow, on anticipation of rate hikes by the US Federal Reserve and deteriorating geopolitical environment amid the Russia-Ukraine war. Further, flows from FPIs are expected to remain volatile in the near term given the headwinds in terms of elevated crude prices and inflation, experts added. Foreign investors withdrew money from equities in the last six months, pulling out a net Rs 1.48 lakh crore between October 2021 and March 2022.