Foreign Investment in Indian Corporate Bonds Soars To Decade High in May

Foreign investors are showing renewed interest in India’s corporate debt market, with May 2025 witnessing the highest monthly inflow in a decade. This resurgence is attributed to a large bond issuance by the Shapoorji Pallonji group and recent policy reforms by the Reserve Bank of India (RBI), which aim to boost foreign portfolio investment in the high-yield segment.

Shapoorji Pallonji’s Bond Deal Spurs Record Inflows

Foreign investment in Indian corporate bonds touched ₹20,996 crore in May, driven by a $3.35 billion fundraise by the Shapoorji Pallonji (SP) group. The issuance offered a 19.75% yield compounded annually and payable at maturity, attracting institutions such as Deutsche Bank, BlackRock, Morgan Stanley, Davidson Kempner, and Cerberus Capital.

Data from the National Securities Depository Ltd (NSDL) shows this is the highest foreign inflow into corporate bonds since January 2015, when investments reached ₹21,660 crore. In contrast, April 2025 recorded an outflow of ₹8,879 crore, highlighting the dramatic reversal in sentiment.

Investment in FY25 Surpasses FY24 Figures

In the financial year 2024-25 (FY25), foreign investment in corporate bonds has reached ₹12,382 crore, already far ahead of the ₹4,511 crore recorded in FY24. This early surge suggests increasing confidence among foreign investors in India's credit market.

As of 4 June, the total foreign investment in corporate bonds stands at ₹1.28 trillion, just 16.74% of the utilised limit. With a total available limit of ₹6.35 trillion, there remains significant headroom for further investment, according to NSDL data.

RBI Reforms Enhance Investment Flexibility for FPIs

The Reserve Bank of India recently scrapped the “short-term investment limit” and “concentration limit” for foreign portfolio investors (FPIs) in corporate debt securities. Previously, FPIs were restricted to allocating a maximum of 30% of their investments to instruments maturing within one year.

In addition, the concentration limit capped their exposure to 15% of the investment ceiling for long-term bonds and 10% for other categories. The removal of these restrictions is expected to encourage wider participation in the high-yield segment of the Indian debt market.

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Conclusion

The sharp rise in foreign investment in Indian corporate bonds reflects a mix of high-yield opportunities and regulatory easing. While inflows have surged, future trends will depend on interest rate dynamics and investor risk appetite amid global economic shifts. 

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