FPI investment in Indian debt market sees change of fortune in October

Rs 2,798 cr of sales so far in Oct; 1st net outflow since April

Foreign portfolio investors' (FPIs') investment in the Indian debt market saw a reversal in trend with the first net outflow since April. Foreign investors sold a net total of Rs 2,798 crore so far in October due to a rise in crude oil prices and geopolitical tensions.

Additionally, a net total of Rs 1,680 crore in government securities designated under the Fully Accessible Route (FAR) was sold in the previous week, Clearing Corporation of India (CCIL) data showed.

In September, foreign investors had net bought Rs 1,278 crore worth of debt.

“Foreign investors are mirroring what domestic participants are doing. Essentially, while the stance changed, the commentary was very hawkish,” said Vikas Goel, managing director and chief executive officer, PNB Gilts. “Other triggers also seem negative, with oil prices rising. Geopolitical tensions, and the potential for war breaking out in the Middle East, have contributed to the market drifting slowly downwards towards 6.80 per cent (yield on the benchmark 10-year bond),” he added.

The yield on the benchmark bond settled at 6.78 per cent on Monday, against 6.79 per cent on Friday. Foreign investors had sold Rs 1,016 crore worth of debt on Friday.

Since the official inclusion of domestic bonds in the JP Morgan indices on June 28 of the current year, foreign investors recorded their first instance of net selling.

FTSE Russell announced last week that it will include India's sovereign bonds in its Emerging Markets Government Bond Index (EMGBI) starting September 2025. The inclusion of India's debt in the $4.7 trillion EMGBI will take place over a six-month period.

According to FTSE, India's bonds will constitute 9.35 per cent of the index on a market-value weighted basis, making it the second-largest component after China.

“The FTSE Russell bond inclusion did lead to some positivity the day it was announced, but the inclusion will take place in 2025, which is too far for the market,” said a dealer at a state-owned bank.

The debt market has witnessed Rs 2,234 crore worth of net inflows since June 28. A net total of Rs 62,974 crore was infused in government securities designated under the Fully Accessible Route (FAR) during the same period, CCIL data showed.