DMPQ- What is P Note? What is the concern associated with P Note?

P-Notes or Participatory Notes are Overseas Derivative Instruments that have Indian stocks as their underlyingassets.  These instruments are issued by foreign portfolio investors (FPIs) registered with SEBI. It allows foreign investors to buy stocks listed on Indian exchanges without being registered with SEBI.  It gained popularity as foreign institutional investors (FIIs) started betting on stocks through this route.  This is to avoid the formalities of registering, and to remain anonymous.

Concern associated with P Notes:

Though, P-Notes are an internationally accepted route to invest money and there are genuine player, there are concerns about round-tripping of money. Wealthy Indians, like companies‘ promoters, are using it to bring back unaccounted funds and to manipulate their stock prices. Recently the special investigation team (SIT) on black money has asked the SEBI to furnish details of all those investing through participatory notes (P-Notes).SEBI has recently put in place restrictions on foreign portfolio investors from issuing participatory notes.  So, P-Notes can be issued only for the purpose of hedging (safeguarding) with respect to the equity shares held.

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