FPIs pump record Rs 39,640 crore into Indian G-Secs in June so far

Mumbai: Overseas investors bought a record ₹39,640 crore – or about $4.2 billion – of Indian government bonds in June so far, making this the strongest inflow into debt instruments for a month by some distance and easily surpassing the previous record of ₹22,005 crore, set in August 2024.

The surge came after the government and the Reserve Bank of India exempted capital gains on eligible sovereign debt investments and expanded the pool of securities under the Fully Accessible Route, measures aimed at deepening foreign participation in the domestic bond market.

The tax exemption has paved the way for increased expectations that Indian debt would be included in Bloomberg’s global aggregate index, market participants said.

“RBIs measures have alleviated concerns regarding rupee depreciation, while tax exemptions for FPIs have boosted optimism about India’s potential inclusion in Bloomberg’s global aggregate index,” said Sameer Karyatt, MD and head of trading, DBS Bank. “These factors have prompted some investors to invest proactively in India, a trend I expect to continue unless there are major shifts in the global geopolitical environment.”

Experts Advise Caution
Inflows from the coordinated regulatory and government measures, which included allowing overseas investors to buy even 30-year debt, are expected to increase India’s foreign exchange reserves that stood at $672 billion as of June 12.

The rupee, after reaching a record low of 96.96 per dollar in late May, appreciated to close at 94.40 on Thursday. The 10-year benchmark yield has eased 20 basis points since the measures were announced. The yield closed at 6.76%, CCIL data showed.
Yields and prices of bonds move in opposite directions. One basis point is a hundredth of a percentage point.”Because the rupee was so volatile and rapidly depreciating, debt investors were averse. But now there is greater confidence and investors think this is a good opportunity,” said Abhishek Upadhyay, senior economist, fixed income strategy, ICICI Securities PD. “I also expect further inflows at the end of this calendar year, as the Bloomberg index inclusion is expected,” Upadhyay said.

The inflows in June come after a muted show in FY26. Net FPI inflows in FAR bonds stood at Rs 3,546 crore last fiscal year, CCIL data showed.

However, some experts caution against extrapolating June’s strong inflows. While recent policy measures have improved the appeal of Indian government bonds, their relative attractiveness remains constrained by elevated US Treasury yields.