FPIs' debt appetite surpasses equity exit in June on RBI, govt measures

Foreign investors pumped a net Rs 55,518 crore into debt in June, exceeding equity outflows, as RBI and government measures boosted the appeal of Indian government bonds

Net investment by foreign portfolio investors (FPIs) in the domestic debt market surpassed their equity selloff in June, driven by strong demand for government securities following a series of measures announced by the Reserve Bank of India (RBI) and the central government to attract foreign capital. 

FPIs infused a net ₹55,518 crore into the debt market in June as of Monday, while remaining net sellers in equities — with outflows of ₹49,340 crore — according to data from National Securities Depository Ltd (NSDL). 

Debt inflows were led by investments under the general limit, which recorded a net inflow of ₹30,620 crore during the month, followed by ₹21,652 crore through the fully accessible route (FAR). Investments under the voluntary retention route (VRR) stood at ₹3,246 crore. 

The surge in debt inflows followed the RBI’s expansion of the FAR to cover all new issuances of 15-year, 30-year and 40-year government securities, along with eased investment norms for overseas investors. The central government also exempted foreign investors from taxes on interest income and capital gains on specified government securities as part of a broader package aimed at deepening the domestic bond market and attracting foreign capital.

 

Market participants said the measures, coupled with the decline in domestic bond yields and expectations of inclusion of Indian bonds in global indices, improved the appeal of government securities for overseas investors. 

“We are seeing increased interest from FPIs in Indian sovereign bonds. Removal of withholding tax on these bonds has increased the attractiveness of Indian government bonds,” said Aditya Bagree, India head of markets, Citi. “Improved macros, lower crude prices and a stable outlook on currency and rates following the recent RBI measures are also contributing to this appeal. We may see this momentum sustain because of the higher likelihood of inclusion in other global bond indices.”

 

Despite robust debt inflows, foreign investors continued to cut equity exposure as global risk aversion and attractive US bond yields weighed on emerging market allocations. Overseas investors have remained net sellers of domestic equities for most of the year.

 

FPIs have withdrawn a net ₹2.74 trillion from equities so far in 2026. In contrast, they have invested a total of ₹63,784 crore in debt, including ₹36,265 crore through the FAR, ₹27,225 crore under the general limit and ₹294 crore through the VRR.

 

“The recent policy measures have materially improved the investment case for Indian government bonds. The tax changes and expansion of the FAR have strengthened foreign participation in the debt market,” said the treasury head at a private bank.

 

“We expect the flows to continue in debt, while we are not expecting much flow on the equity side. Foreign investors are finding better opportunities in overseas technology and AI-related stocks. At the same time, earnings growth in India has been softer than expected, which has led to some reduction in equity exposure,” he added.

 

Market participants said the recent measures could strengthen India’s case for inclusion in the Bloomberg Global Aggregate Bond Index, one of the few major global bond indices that domestic sovereign debt has yet to enter.

 

Indian government securities were included in the JPMorgan Government Bond Index-Emerging Markets in June 2024, followed by the Bloomberg Emerging Market Local Currency Government Index in January 2025 and FTSE Russell’s Emerging Markets Government Bond Index in September 2025.