Date:13/01/2005 URL: http://www.thehindubusinessline.com/2005/01/13/stories/2005011304130100.htm

Back The surge and participatory notes

Our Bureau

Mumbai , Jan. 12

THE RBI Governor's concerns on foreign institutional investment (FII) flows have to be viewed in the context of recent gyrations in the country's equity markets.

Two facets of FII flows in recent times stand out. One, there has been a surge in such flows for the year 2004, estimated at close to $9 billion. Two, as much as 40 per cent of such inflows, according to sources connected to capital market regulation, represented monies coming in by way of `participatory notes' — an arrangement where the actual overseas investor who does not possess an authorisation to invest in the Indian market, nevertheless gets a registered FII to route investments in chosen scrips on its behalf.

The regulatory concerns stem from the fact that the larger flow of investments under the `participatory note' system could add to the inherent volatility of FII money flowing into the stock market.