Foreign portfolio investors (FPIs) have poured nearly ₹10,000 crore into Indian bonds over the last four trading sessions, marking a sharp reversal after weeks of persistent selling. The sudden shift follows a combination of government tax relief measures and RBI steps aimed at making India’s debt market more attractive to overseas investors.
Key Takeaways
- FPIs purchased nearly ₹10,000 crore worth of Indian bonds in four trading sessions (June 4–9), per CCIL data.
- The government’s June 5 ordinance scrapped the 20% withholding tax on G-sec interest income and the 12.5% LTCG tax on bond gains, both retroactively from April 1, 2026.
- RBI expanded FAR to include new 15-, 30-, and 40-year G-secs, and removed concentration limits and short-term investment restrictions.
- FAR holdings rose from ₹3.23 trillion on June 3 to ₹3.32 trillion on June 9, per CCIL data reported by Business Standard.
- Prior to the reversal, FPIs had sold over ₹10,119 crore of debt since the escalation of the US-Israel war on Iran.
FPI Sentiment Turns Positive After Weeks of Selling
Foreign investors have staged a significant comeback in India’s debt market.
According to CCIL data, overseas investors purchased close to ₹10,000 crore worth of bonds across the last four sessions, reversing a trend that had dominated much of the previous month.
The turnaround comes after geopolitical concerns triggered risk aversion across emerging markets. Since the escalation of the US-Israel war on Iran that began on February 28, 2026, FPIs had been net sellers of Indian debt, pulling out more than ₹10,119 crore. On average, daily selling ranged around ₹1,000 crore with only sporadic bouts of buying.
The recent buying suggests investors are reassessing India’s fixed-income attractiveness following coordinated policy support from both the government and the RBI.
What Triggered the Bond Buying?
1. Tax Exemption on Eligible Debt Investments
The government promulgated an ordinance on June 5 amending the Income Tax Act, scrapping the 20% withholding tax on interest income from G-secs and the 12.5% long-term capital gains tax on bond gains held by FPIs. Both exemptions are effective retroactively from April 1, 2026. The ordinance also extends the tax exemption to the Bank for International Settlements (BIS), subject to prescribed disclosure requirements.
For global bond funds, taxation plays a critical role in determining post-tax returns. The dual exemption materially improves India’s attractiveness compared with other emerging-market debt destinations — and applies to existing holdings too, given the April 1 backdating.
2. RBI Expands Investable Bond Universe
The RBI widened investment opportunities for overseas investors by expanding the Fully Accessible Route (FAR). FAR now covers all new issuances of 15-year, 30-year, and 40-year G-secs. Previously, FAR was capped at 10-year tenors, meaning long-duration global passive funds had no eligible instruments in India’s debt market. RBI also removed concentration limits and short-term investment restrictions for FPIs on the General Route.
As RBI Governor Sanjay Malhotra stated during the June monetary policy announcement, the measures are designed to deepen foreign participation in India’s sovereign debt market and facilitate government borrowing at affordable rates.
Together, the two measures have created a materially more supportive environment for foreign participation in Indian debt markets.
FPI Debt Flows: Before and After Policy Measures
| Period | FPI Debt Flow | FAR Holdings (CCIL) |
|---|---|---|
| Post US-Israel-Iran conflict (to June 3) | -₹10,119 crore | ₹3.23 trillion |
| Last 4 sessions (June 4–9) | +~₹10,000 crore | ₹3.32 trillion |
| Net swing | ~₹20,000 crore reversal | +₹9,000 crore in holdings |
Source: CCIL, Economic Times, Finance Ministry. Data as of June 9, 2026.
Session-by-Session FAR Inflow Breakdown (CCIL)
| Date | FAR Flow (₹ Crore) | Direction |
|---|---|---|
| May 21 | ~200 | Inflow |
| May 22 | ~150 | Inflow |
| May 25 | ~250 | Inflow |
| May 26 | ~-300 | Outflow |
| May 27 | ~150 | Inflow |
| May 29 | ~2,700 | Inflow |
| June 1 | ~200 | Inflow |
| June 2 | ~-300 | Outflow |
| June 3 | ~-600 | Outflow |
| June 4 | ~1,000 | Inflow |
| June 5 | ~4,500 | Surge — Ordinance Day |
| June 8 | ~3,300 | Inflow |
| June 9 | ~1,000 | Inflow |
Source: CCIL. The June 5 single-session spike is the largest in the two-week window and directly coincides with the ordinance gazette notification date.
Bond Yields React to Fresh Foreign Demand
Bond prices and yields move inversely; when investors buy government securities aggressively, bond prices rise and yields fall. India’s 10-year G-sec yield fell to approximately 6.9%, a four-week low, down from around 7.1% just before the ordinance. The RBI held the repo rate unchanged at 5.25% at its June meeting, meaning the yield decline is entirely demand-driven, not a rate-cut effect.
Why Falling Yields Matter
Lower yields can:
- Reduce government borrowing costs
- Improve system-wide liquidity conditions
- Support corporate bond issuance
- Strengthen confidence in India’s fixed-income market
The Bloomberg Global Aggregate Angle — The Bigger Story
India has been progressively integrated into global bond indices over the past two years. It entered the JPMorgan GBI-EM Index in June 2024, the Bloomberg EM Local Currency Bond Index in January 2025, and the FTSE Russell Emerging Market Index in September 2025.
The fourth and largest, the Bloomberg Global Aggregate Index, tracked by nearly $3 trillion in passive assets, deferred India’s inclusion in January 2026, specifically citing unresolved tax processes and settlement-related friction as the key concerns.
The June 5 ordinance directly addresses the tax piece. Bloomberg Index Services has committed to providing a mid-2026 update on India’s status. A 1% weight allocation in the Bloomberg Global Aggregate could translate into approximately $25 billion of inflows, spread over roughly 10 months. That is the structural bet global funds are beginning to price in, and it explains why the post-ordinance buying has been swift and concentrated.
NiftyTrader Data Angle: Why Debt Flows Matter for Equity Investors
Many equity investors ignore bond flows, but foreign debt participation often provides important clues about broader global sentiment toward India.
What Investors Should Monitor
| Indicator | Why It Matters |
|---|---|
| FPI Debt Flows (FAR) | Shows global confidence in India’s macro |
| FII Equity Flows | Indicates overall risk appetite |
| 10-Year G-Sec Yield | Signals government borrowing costs |
| RBI Liquidity Operations | Impacts system-wide liquidity |
| USD/INR Trend | Influences FPI net returns in dollar terms |
When foreign investors increase debt exposure alongside improving equity flows, it often signals growing confidence in macroeconomic stability, and can act as an early leading indicator for equity market sentiment.
👉 Track daily FII-DII activity and institutional money flows on NiftyTrader’s FII-DII Dashboard.
The Macro Backdrop: How Bad Was the Selling?
To appreciate the scale of the reversal, the context matters. According to NSDL data, FPIs have net sold approximately ₹2.2 lakh crore from Indian equities in 2026 through mid-May, already exceeding the ₹1.66 lakh crore in total FPI outflows recorded across all of 2025. The selling was broad-based, hitting both equities and debt.
The primary trigger was the US-Israel war on Iran, which drove crude oil sharply higher, pushed the rupee to a record low of near ₹96.79 per dollar on May 20 (per Wise exchange rate data), and caused a broad emerging-market risk-off. The rupee was trading near ₹95.36 as of June 10. The current inflow burst represents the first meaningful policy-driven interruption to that trend.
What Could Derail the Rally?
Despite the recent surge in inflows, risks remain:
- Re-escalation of the US-Israel-Iran conflict in West Asia
- Higher US Treasury yields narrowing the India-US spread
- A stronger US dollar pressuring rupee and FPI net returns
- Unexpected domestic inflation pressures
- Delayed resolution of Bloomberg’s settlement and operational concerns
Any of these factors could reverse risk appetite and trigger renewed outflows from emerging-market debt. The rupee remains a particularly live risk, any deterioration from current levels directly erodes FPI bond returns when converted back to dollars.
Bottom Line
Foreign investors have reversed course dramatically, buying nearly ₹10,000 crore worth of Indian bonds in just four sessions after weeks of persistent selling.
The government’s June 5 ordinance, scrapping the 20% withholding tax and 12.5% LTCG tax on G-secs retroactively from April 1, combined with the RBI’s FAR expansion to 15-, 30-, and 40-year tenors, has restored immediate confidence in India’s debt market.
FAR holdings have climbed from ₹3.23 trillion to ₹3.32 trillion in under a week per CCIL data, and the 10-year yield has cooled to a four-week low of approximately 6.9%.
The bigger structural question now is whether India’s pending Bloomberg Global Aggregate inclusion, a potential $25 billion trigger, is closer after the tax friction that held it back has been cleared.
This article is for informational and educational purposes only and does not constitute investment advice. Please consult a qualified financial advisor before making investment decisions.
