Hot money is leaving India...but only for now!

Hot money is leaving India...but only for now!
» Beware of P-Note backed 'hot money'
As per numbers released by the SEBI (Securities & Exchange Board of India), net FII inflows into Indian stockmarkets have crossed US$ 6 bn (approx Rs 299 bn) in 2009 so far. This is good news for those who believe that greater FII investments always act like a virtuous circle - more FII investments pull in more FII investments and so on.

Now, here's another FII-related number that might be 'bad news' for punters - the total value of Indian shares held via participatory notes (P-Notes), after touching Rs 1 trillion at the end of May 2009, has declined by around 21% YoY in June 2009. For starters, participatory notes (P-Notes) are instruments used by foreign investors or hedge funds that are not registered with the SEBI to invest in Indian securities. In short, P-Notes remain an 'unidentified' source of foreign money.
And while P-Note holders might be selling their investments in Indian stocks (as data would have us believe), we remain unsure of their motive behind this i.e., moving out of Indian stocks. After all, we have always been unsure about their real motive behind investing in India in the first place.

So, while public data might make us and you believe that the role of P-Notes in FII investments is on a decline (as the above chart also shows), we should not count out a sudden strike that these 'unidentified' source of hot moneycan have on Indian markets. At least this is what history teaches us.