Abstract
Securities and Exchange Board of India (SEBI) has recently decided to tighten screws on “Participatory Notes” also known as “P-Notes”. P-Notes, or off-shore derivative instruments (ODIs), are instruments issued by foreign portfolio investors (FPIs) to overseas investors who wish to invest in Indian stock markets without registering themselves with SEBI. This makes P-notes susceptible to use for money laundering and round tripping. SEBI’s current move aims to curb these activities by making P-notes a more regulated instrument and thereby making it less attractive. This paper examines the possible effect of a decrease in foreign investment through P-notes on the Indian stock market and finds that investments through P-Notes do not seem to have a significant impact on the Indian Stock Market.
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