Mumbai: The domestic equity markets extended their loss for the third straight day despite gains in global stocks as foreign portfolio investors turned heavy sellers after the Securities and Exchange Board of India (Sebi) tightened the norms governing the issue and transfer of participatory notes (P-notes).
After opening the day on a positive note, the Sensex failed to sustain its winning momentum and ended the week on a negative note. The Sensex closed the session at 25,301.90, down 97.82 points while the Nifty ended the day at 7,749.70, down 33.70 points.
“The Indian markets started the day on a tight range with a positive bias, it soon lost momentum following the market regulator’s move to tighten P-note, which may impact the flow of foreign investors in the near-term. Additionally, India is concerned over volatility in oil prices and possible interest rate hike in US,” said Vinod Nair, head of research at Geojit BNP Paribas.
There are apprehensions that the stricter set of norms will make it costlier to invest in India through P-notes as one of the major attractions of such instrument is cost-effectiveness and easier access.
Apart from the requirement of reporting about positions of offshore derivative instruments (ODIs) —commonly known as participatory notes or P-notes —now the issuers are required to provide details about the end beneficial owner and comply with onshore KYC norms.
The latest changes would make the regulatory framework in India more stringent than many developed and developing nations. In China, Taiwan, Korea, Germany, the UK and the US, among other countries, the norms pertaining to onshore KYC requirements for ODI issuers do not compulsorily require disclosure of details about the ultimate beneficial owner, as per an analysis by Sebi.
"The new norms are in line with suggestions made by SIT in its July 2015 report. These changes will not only make the route difficult to access India market, but also make it more expensive," Suresh Swamy, Partner Tax and Regulatory (financial services) at PwC India, said.
Economic affairs secretary Shaktikanta Das, however, said that the issuers of P-notes or offshore derivative instruments (ODIs) have been sensitised about the provisions and all of them are on board.
“All the P-Note issuers have been sensitised about the requirement. They are fully on board. There are about 37 P-note issuers. Almost all of them are on board,” the secretary said and added that the market regulator has only asked those entities to comply with Indian provisions regarding as the KYC mechanism in some jurisdictions are pretty relaxed.
