News Excerpt
Investments through participatory notes (P-notes) in the domestic capital market soared to Rs 63,288 crore till July-end, making it the fourth consecutive monthly rise.

Trends in P-notes
•    According to the Securities and Exchange Board of India (SEBI), the value of P-note investments in Indian markets -- equity, debt, hybrid securities and derivatives -- stood at Rs 63,288 crore till July-end, while the same was at Rs 62,138 crore at the end of June.
•    Prior to that, investment level was at Rs 60,027 crore and Rs 57,100 crore at the end of May and April, respectively.
•    The investment level had fallen to an over 15-year-low of Rs 48,006 crore at the end of March.
•    The figure at March-end was the lowest level of investment since October 2004, when the total value of P-note investments in the Indian markets stood at Rs 44,586 crore.
•    The lower figure in March came amid significant volatility in broader markets on concerns over the coronavirus-triggered crisis.

About P-notes
    These are issued by registered foreign portfolio investors (FPIs) to other foreign investors, willing to invest in the Indian stock market without going through the process of registering themselves.
    In a report published by SEBI, the regulator disclosed that P-note participation has increased in all the segments of equity, debt, hybrid securities, and derivatives.
    P-notes are used by foreign investors to invest in stock derivatives which have Indian stocks as underlying assets.
    P-Notes are among the group of investments considered to be Offshore Derivative Investments (ODIs).
    It allows them to skip the registration process, which is placed by the government for FPI investors.
    It enables investors to stay anonymous while leveraging profit by engaging in speculations.

Advantages of P-Notes
    Participatory notes are easily traded overseas through endorsement and delivery.
    They are popular because investors anonymously take positions in Indian markets, and hedge funds may anonymously carry out their operations.
    Some entities route their investments through participatory notes to take advantage of tax laws that are available in certain countries.

Disadvantages of P-Notes
    Because of the anonymity it possesses, Indian regulators face difficulty determining a participatory note's original owner and end owner.
    A substantial amount of unaccounted money enters the country through participatory notes.
    This flow of untracked funds has raised some red flags.