FPIs net sellers of G-secs under FAR in FY26, inflows return in Q2

FPIs sold Rs 17,262 crore of government securities under FAR in FY26 so far, but Q2 has seen a turnaround with Rs 14,540 crore in inflows as bond yield spreads widened

Foreign Portfolio Investors (FPIs) have net sold Rs 17,262 crore worth of Indian government securities under the Fully Accessible Route (FAR) so far in FY26, compared with net purchases of Rs 54,259 crore during the same period last year. Market participants attributed the sell-off largely to profit booking and rupee volatility amid global interest rate uncertainty.

 

“The inflows we saw last year were due to inclusion of government bonds in JP Morgan indices. This year the inclusion process is over and there have been many global uncertainties and domestic uncertainty around the RBI’s decision, which has impacted flows,” said the treasury head at a private sector bank.

 

FPIs had net bought Rs 2.3 trillion worth of FAR securities in FY25.

 

JPMorgan announced in September 2023 that Indian bonds would be phased into the index starting 28 June 2024 and reach the full 10 per cent weighting by 31 March 2025, at 1 per cent per month.

 

Between June 2024 and March 2025, total foreign purchases under the FAR route reached Rs 1.09 trillion. Much of the inflow, however, occurred in the months leading up to the actual inclusion between September 2023 and June 2024, indicating significant front-loading by investors who anticipated the move and adjusted their portfolios ahead of schedule.

 

In the period following March 2025, after the completion of the inclusion process, significant reversals were observed. Data from the Clearing Corporation of India (CCIL) showed net outflows of Rs 11,145 crore in April, Rs 12,317 crore in May and Rs 7,800 crore in June of FY26, cumulatively wiping out over Rs 31,000 crore in foreign investment during the first quarter of the financial year.

 

Since July, however, the bond market has seen a reversal in trend as the yield spread between India’s benchmark 10-year government bond and the US 10-year bond widened to 241 basis points, compared with 190 basis points in June. Foreign investors infused a net Rs 14,540 crore in Q2FY26 so far.

 

“The outflow during Q1FY26 was because the yield spread with the US narrowed. The US yield was rising during the global trade war situation and our yield was softening because of the RBI’s open market operations (OMO) purchases and liquidity infusion, along with the rate cut,” said the treasury head at another private sector bank.

 

“We saw some reversals because our yield rose when rate cut hopes faded, and the US yield softened, widening the spread,” he added.