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Q67 (IAS/2019) Economy › Industry, Infrastructure & Investment › Investment vehicles Official Key

Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock market without registering themselves directly?

Result
Your answer: —  ·  Correct: D
Explanation

Participatory Notes (P-notes) can be issued by foreign portfolio investors (FPIs) registered with Sebi, and allow overseas investors, hedge funds and other foreign institutions to invest in Indian markets without directly registering[1] with Sebi. A Participatory Note (PN) is a derivative instrument issued in foreign jurisdictions, by a Foreign Institutional Investor (FII) / its sub-accounts or one of its associates, against underlying Indian securities.[2] P-Notes are generally issued by a registered FPI to its clients/investors who wish to participate in Indian capital markets but do not want to be registered themselves in the markets directly.[3] PNs are popular among foreign investors since they allow these investors to earn returns on investment in the Indian market without undergoing the significant cost and time implications of directly investing in India.[2] The other options—Certificate of Deposit, Commercial Paper, and Promissory Note—are different financial instruments not used for this specific purpose of providing unregistered overseas investors access to Indian stock markets.

Sources
  1. [1] https://www.livemint.com/Money/Vn1BmjR7VGxWiZ8nu0IDmM/Outstanding-investments-via-Pnotes-at-7year-high.html
  2. [2] https://dor.gov.in/sites/default/files/inline-documents/FinalBlackMoney.pdf
  3. [3] https://www.livemint.com/market/budget-2023-govt-allows-ifsc-units-to-issue-p-notes-to-overseas-investors-here-s-what-it-means-151675930669397.html
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Q. Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock …
At a glance
Origin: Mostly Current Affairs Fairness: Low / Borderline fairness Books / CA: 0/10 · 10/10
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Statement 1
Do registered foreign portfolio investors issue Participatory Notes to overseas investors to provide exposure to the Indian stock market without the overseas investors registering directly?
Origin: Web / Current Affairs Fairness: CA heavy Web-answerable

Web source
Presence: 5/5
"P-notes, which can be issued by foreign portfolio investors (FPIs) registered with Sebi, allow overseas investors, hedge funds and other foreign institutions to invest in Indian markets without directly registering with Sebi."
Why this source?
  • Explicitly states P-notes can be issued by FPIs registered with SEBI.
  • Says P-notes allow overseas investors to invest without directly registering with SEBI, matching the claim.
Web source
Presence: 5/5
"Brokers and foreign institutional investors registered with the Securities and Exchange Board of India (SEBI) issue the participatory notes and invest on behalf of the foreign investors. This system allows unregistered overseas investors, like high-net-worth individuals and hedge funds, to buy Indian shares without registering in India."
Why this source?
  • Identifies FIIs and registered brokers as issuers of participatory notes.
  • States the system allows unregistered overseas investors to buy Indian shares without registering in India.
Web source
Presence: 5/5
"A Participatory Note (PN) is a derivative instrument issued in foreign jurisdictions, by a Foreign Institutional Investor (FII) / its sub-accounts or one of its associates, against underlying Indian securities. PNs are popular among foreign investors since they allow these investors to earn returns on investment in the Indian market without undergoing the significant cost and time implications of directly investing in India."
Why this source?
  • Defines a Participatory Note as an instrument issued by an FII or its associates against underlying Indian securities.
  • Explains PNs allow foreign investors to earn returns in the Indian market without the time/cost of direct investment (i.e., without registering directly).

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > 2019| > p. 285
Strength: 5/5
“• 3. Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock market without registering themselves directly? • (a) Certificate of Deposit • (b) Commercial Paper • (c) Promissory Note • (d) Participatory Note”
Why relevant

Gives a direct-styled exam item that links 'registered foreign portfolio investors' with issuing something to overseas investors who want exposure without registering — the correct option listed is 'Participatory Note'.

How to extend

A student could treat this as an authoritative classroom formulation and check regulatory descriptions of Participatory Notes and FPI activities to confirm operational details.

Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 16: Balance of Payments > a. Foreign Institutional Investment (FII) > p. 478
Strength: 4/5
“• Foreign institutional investors can buy/sell securities on Indian stock exchanges, but they have to get registered with SEBI. • Foreign institutional investors are allowed to invest in India's primary and secondary capital markets only through the country's portfolio investment scheme (PIS).”
Why relevant

States that foreign institutional/portfolio investors must be registered with SEBI to buy/sell on Indian exchanges.

How to extend

Combine this rule with the idea that intermediaries (registered FPIs) can act on behalf of non-registered overseas investors to infer why P-Notes might be issued by registered FPIs.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.23 Foreign Investment > p. 98
Strength: 4/5
“The Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry sets the rules for foreign investment and makes policy pronouncements on FDI through various Press Releases.• As per the regulations under Foreign Exchange Management Act (FEMA) 1999, an Indian company receiving FDI/FPI does not require any prior approval of RBI at any stage. It is only required to report the capital inflow and subsequently the issue of shares to the RBI in prescribed formats. FPIs require SEBI approval/license.• Foreign Portfolio Investors (FPIs) are institutions incorporated outside India and include mutual fund, insurance company, pension fund, banks, NRIs etc. registered with SEBI.• When an Indian company invests abroad then there is another term for it and this is called "Overseas Direct Investment" (ODI).”
Why relevant

Defines Foreign Portfolio Investors (FPIs) as institutions incorporated outside India and registered with SEBI.

How to extend

Use this definition to reason that FPIs are the regulated entities through which foreign participation occurs, so instruments issued by FPIs (like P-Notes) plausibly provide that access.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.23 Foreign Investment > p. 100
Strength: 3/5
“Global Depository Receipt (GDR)/American Depository Receipt (ADR): • Through ADRs, US investors buy shares of companies based outside US (i.e India).• ADRs exist because many companies (outside US) do not want to bother with the expense and hassle of directly listing their shares on US stock exchanges.• An ADR is a share (security) issued by the Overseas Depository Bank to the US investor. It represents one or more shares of Indian company held by the Overseas Depository Bank with the Domestic Custodian Bank.• It may be possible that for every 10 shares held, one ADR is created by the Overseas Depository Bank and accordingly prices will get adjusted.”
Why relevant

Explains ADR/GDR as intermediary depository instruments that allow overseas investors to gain exposure without direct listing — an analogous pattern of using intermediaries to access foreign securities.

How to extend

Use the ADR/GDR analogy plus knowledge of international investment practice to see P-Notes as a similar intermediary device for foreign investors to access Indian stocks.

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