NEW DELHI: Foreign investors are rapidly selling Indian government bonds and pulling capital from the country’s financial markets, as shrinking yield advantages, currency risks and uncertainty over India’s inclusion in global bond indices weigh on investor sentiment under the Narendra Modi government.
Foreign investors have sold about Rs9.87 billion ($111 million) of Indian government bonds since August through the Fully Accessible Route (FAR), according to market data reported by The Economic Times. That followed purchases of about Rs493.55 billion in June and July.
The reversal comes as global yields have risen sharply, narrowing the yield advantage offered by Indian debt. The US 10-year Treasury yield recently reached about 4.81%, while higher crude oil prices have also raised concerns about inflation and the outlook for interest rates in India.
Bloomberg index decision
Bloomberg Index Services in July again deferred a decision on including Indian government bonds in its flagship Global Aggregate Index.
The index provider said India had made some progress in improving market access and transparency, but reforms needed more time to become firmly established in day-to-day market practices. The decision disappointed investors who had expected inclusion to attract substantial foreign inflows.
The delay followed measures by New Delhi to make Indian debt attractive to overseas investors. The government scrapped long-term capital gains and withholding taxes on government securities, while the Reserve Bank of India expanded access to some longer-term bonds.
Foreign investors had subsequently poured billions of dollars into Indian debt. Reuters reported in August that nearly $7 billion had flowed into Indian debt since June.
Capital outflows from India’s equity market
Foreign portfolio investors have also been active sellers in India’s equity market this year. They withdrew Rs74.43 billion from Indian equities in the first week of September after buying for two consecutive months in July and August.
The latest withdrawal took their cumulative equity outflow for 2026 to about Rs2.32 trillion, according to market data reported by PTI.
India’s bond market has also faced pressure from rising oil prices and US Treasury yields. Reuters reported on September 10 that Indian government bonds weakened for a second consecutive day as crude remained above $100 a barrel, raising concerns about inflation and the country’s import bill.
