Foreign funds registered with India’s markets regulator and with operations at GIFT City can now issue participatory notes.
What are P-Notes?
P-Notes, short for Participatory Notes, are financial instruments that let foreign investors indirectly invest in the Indian stock market without registering with the market regulator, Sebi Here’s a breakdown of how they work:
P-Notes act like a substitute for underlying Indian company shares. When you buy a P-Note, you’re essentially investing in the performance of those Indian shares.
Benefits for foreign investors: Avoids the hassle of registering with SEBI and offers anonymity.
What’s new?
Previously, only banks registered with GIFT City could issue P-Notes. Now, foreign funds registered with Sebi and operating in GIFT City can also issue them. Foreign funds issuing the notes would need to meet compliance requirements of IFSCA and the Securities and Exchange Board of India.
Why is this significant?
More options for foreign investors: This gives foreign investors more choices for investing in Indian stocks through P-Notes.
Potential for GIFT City: This move could attract more foreign funds to set up shop in GIFT City, boosting its development as a financial hub.
Challenges of P-Notes:
Opacity: P-Notes are criticized for being opaque, meaning the ultimate owner of the Indian stocks might be hidden.
Stricter regulations: Due to these concerns, Indian regulators have imposed stricter compliance rules on P-Notes in the past.
Possible benefit:
Analysts believe this relaxation might incentivize some P-Note structures to shift from overseas jurisdictions to GIFT City, bringing them under Indian regulations.
The government aims for GIFT City to become a major international financial center.
With inputs from Reuters
First Published: May 03 2024 | 11:52 AM IST