Sebi’s move to lift the ban on issuing participatory notes (PNs) and other caps on these instruments in an effort to attract foreign capital and shore up a rapidly falling stock market in October 2008, has given them more leeway to operate in India. This was actually a reversal of a year-old decision under which the regulator had placed a 40% cap on FIIs issuing PNs through sub-accounts. Sebi had earlier completely banned any such instruments that were based on Indian stocks or index derivatives.

Sebi had also done away with the 70:30 ratio of FII investment in equity and debt respectively. This is expected to give overseas investors more flexibility in taking investment decisions depending on the market situation. This move, along with the lifting of curbs on PNs, is expected to result in more inflows in the long term.

FIIs were big sellers in September and October 2008.