FPIs prefer direct access to stock markets over P-notes: PwC

Mumbai, Aug 17 (PTI) With tighter norms surroundingP-notes and Sebi clampdown on beneficiaries of such products,about 73 per cent overseas investors would prefer directaccess to Indian capital markets over offshore derivativeinstruments (ODIs), says a latest PwC survey. Share of investments through P-notes in FPI (foreignportfolio investors) inflows into the country have fallen to amere 8.8 per cent in June this year, from 55.7 per cent in thesame period of 2007. Till March this year, investments from P-notes represented10 per cent of the total FPI inflows. According to a survey of over 200 FPIs across the globe,PwC found that 73 per cent of the respondents indicated thatthey would prefer direct access to the India market over ODIs. "The response is clearly a reflection of Sebi’s recentclampdown on P-notes or ODIs," PwC partner (tax and regulatoryservices) Suresh V Swamy told reporters here. Offshore Derivative Instruments (ODIs) — commonly knownas P-Notes — provide the foreign investors an easier andcost-effective route to invest in Indian markets withoutdirectly registering as FPIs. P-notes have traditionally been used by investors whowanted to gain access to Indian markets without the hassle ofcomplying with mandatory tax and regulatory rules. However,this route was viewed by regulator Sebi as largely opaque,giving them neither information nor control over the ultimatebeneficiary. Pursuant to the Supreme Court appointed SITrecommendations, Sebi made rules more stringent and soughtmore information about these beneficiaries. "Direct access to markets is much simpler as end-userinformation is not required to be handed out," Swamy noted. Besides, ODI issuers under the new Sebi guidelines have toput in place necessary system and carry out a periodicalreview and evaluation of its controls, systems and procedures. Moreover, the investors are required to obtain thepermission of FPIs prior to the transfer of ODIs. "These changes, coupled with renegotiation of taxtreaties, are likely to make P-notes less lucrative," Swamysaid. (MORE) PTI SSM ARS JMABISRE