Investors participating in Indian capital markets through Participatory-notes (P-notes) are likely to come in directly as Foreign Policy Investments(FPIs), with Sebi’s new proposals expected to make investment via these instruments costlier.
It said note-holders will have exposure to the derivatives market only for hedging and not for speculation.
“Most ODI issuers are based in tax efficient jurisdictions, which do not levy tax on capital gains on sale of derivatives,” he added.
The proposed measures, which follow a slew of other steps taken by the regulator in the recent past, have come at a time when the value of foreign investments through P-notes has already fallen to a four-month low of about Rs 1.68 lakh crore at the end of April.
The regulator said quite a few ODI subscribers invest through multiple issuers and the proposed fee will discourage the ODI subscribers from taking ODI route and encourage them to directly take registration as an FPI.
ODIs are currently being issued against derivatives along with equity and debt. At the end of last month, outstanding p-note investments in derivatives stood at Rs 40,165 crore (notional value), which was 24 per cent of the total outstanding p-note investments.