Foreign investors in Indian government bonds have turned
cautious, selling the most global index-linked debt in over half
a year last week, as rate-cut bets fade, bond supply stays
heavy, and the rupee weakens.
Foreign funds net sold over ₹54.3 billion (nearly $600
million) of bonds that are linked to global indexes last week,
in their worst selloff since the week ended May 30, clearing
house data showed.
Why it’s important
Foreigners currently own less than 3.5% of total Indian
bonds. New Delhi wants that share to rise as government
borrowing is set to be elevated for the next few years and as
banks look to reduce their holdings to meet rising credit
demand.
Sustained foreign inflows also help the local currency and
improve the chance of inclusion in global indexes.
By the numbers
Foreigners slashed positions from both the shortest and
longest maturity index-linked papers, with net sale of 27
billion rupees in the 2053 note and 14.8 billion rupees in the
2027 note. Overall foreign holding of index-linked bonds eased
17 basis points last week to 6.85%.
Key quotes
A potential bilateral trade deal with the U.S. along with
Bloomberg Global Aggregate Index inclusion should benefit flows
going forward, said Wontae Kim, portfolio manager at Western
Asset Management. “We are not reallocating away from local
currency Indian bonds to hard currency Asia bonds,” he added.
“We have turned more positive towards Indian bonds as both
bonds and the INR have further cheapened. We expect the
potential announcement of better trade deals between the U.S.
and India will provide a good boost to rupee bonds’
performance,” said Yifei Ding, senior portfolio manager, fixed
income at Invesco.
Market reaction
Indian government bond yields rose last week, with the
10-year benchmark bond yield jumping 10 basis points, the
biggest weekly increase in four months.
What’s next
Foreign investors will now watch the Reserve Bank of India’s
bond market purchases and next financial year’s borrowing
target.
Published on December 15, 2025
