FPIs bought bonds worth ₹13,397 cr via FAR in Oct, highest in FY26 so far

Market participants said that sentiment in the domestic debt market improved due to the US Federal Reserve's policy rate cuts, and growing expectations of a trade deal between the two countries

Sentiment in the domestic debt market improved due to the US Federal Reserve’s policy rate cuts, and growing expectations of a trade deal between India and America, said market participants.

 

In October, foreign investors bought a net ₹13,397 crore worth of central government securities designated under the Fully Accessible Route (FAR). This is the highest in the current financial year (FY26) and compares to a net buy of ₹8,333 crore in September.

 

“Foreign portfolio investors (FPIs) came back to the market as the yield spread between the US and India widened to 251 basis points (bps). It had narrowed below 200 bps in June,” said the treasury head at a private bank.

 

FPIs were net buyers of FAR securities in the past four months against a massive sell-off in the first quarter of FY26.

 

The yield spread between India’s benchmark 10-year government bond and the US 10-year bond widened to 251 bps against 190 bps in June.

 

The period following March 2025, after the completion of the inclusion process in the JP Morgan emerging market index, witnessed notable reversals.

 

Data by the Clearing Corporation of India (CCIL) showed net outflows of ₹11,145 crore in April, ₹12,317 crore in May, and ₹7,800 crore in June, cumulatively eroding over ₹31,000 crore in foreign investment during the first quarter of FY26.

 

“During the first quarter, US yields were rising amid global trade tensions, while Indian yields softened due to the RBI’s open market operations (OMO), liquidity infusion and policy rate cuts. Later, as rate cut expectations faded and Indian yields edged higher while US yields eased, the spread widened again, leading to some reversal of flows,” said another market participant.

 

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

 

Between June 2024 and March 2025, total foreign purchases under the FAR route had reached ₹1.09 trillion.

 

Much of the inflow occurred in the months leading up to the actual inclusion between September 2023 and June 2024. Net inflows stood at approximately ₹92,302 crore. This indicated significant front-loading by investors who anticipated the move and adjusted their portfolios ahead of schedule.