Foreign investors turned cautious on Indian government bonds last week, posting their largest weekly selloff of index-linked debt in over six months, as expectations for near-term rate cuts faded, bond supply remained heavy, and the rupee weakened.
According to clearing house data, foreign funds net sold ₹54.3B (~$600M) of index-linked bonds — the sharpest outflow since late May.
🔹 Why It Matters
Foreign ownership of Indian bonds remains below 3.5%, a level policymakers are keen to increase as government borrowing stays elevated and domestic banks shift capital toward rising credit demand.
Stable foreign inflows also help support the INR and strengthen India’s position in global bond indices.
🔹 By the Numbers
- Net sales included:
- ₹27B of the 2053 maturity
- ₹14.8B of the 2027 maturity
- Overall foreign holdings of index-linked bonds slipped 17 bps to 6.85%
- The 10-year government bond yield jumped 10 bps, its biggest weekly rise in four months
🔹 Why Funds Remain Constructive
Despite the pullback, major asset managers remain bullish on India’s bond market:
- Western Asset cited potential U.S.–India trade progress and Bloomberg Global Aggregate Index inclusion as future flow catalysts
- Invesco said cheaper bond valuations and a weaker rupee improve return prospects, adding that trade developments could boost performance
🔹 What to Watch Next
Investors are now focused on:
- RBI bond purchases
- India’s next fiscal-year borrowing target
The near-term tone may be cautious, but global funds continue to view Indian local-currency bonds as a structural opportunity, not a tactical exit.