FPIs Pull Out ₹25,543 Crore from Indian Government Bonds in This Quarter

Foreign portfolio investors (FPIs) have withdrawn ₹25,543.68 crore from Indian government securities between April 2 and June 3, 2025. This is the highest recorded outflow in a single quarter since India’s government bonds were included in global bond indices. The data comes from the Clearing Corporation of India Ltd (CCIL).

First Outflow Since Inclusion in Global Index

This is the first quarterly outflow since September 2023, when JPMorgan announced the inclusion of Indian government bonds in its Government Bond Index-Emerging Markets. Until now, each quarter since the announcement had seen rising foreign investments. Bloomberg and FTSE Russell later announced similar inclusion plans, adding to the momentum.

Smaller Yield Gap Impacts Demand

The exit is linked to the narrowing interest rate differential between Indian and U.S. 10-year government bonds. The gap, which was over 250 basis points in November 2023, has now fallen to about 170-180 basis points. Lower spreads tend to reduce foreign interest in emerging market bonds as adjusted returns fall, especially when factoring in currency movement and compliance costs.

Top Securities Sold by FPIs

7 Indian government bonds accounted for 72% of the foreign selling in April and May:

• 7.18% 2033 – 17%
• 7.30% 2053 – 12%
• 7.04% 2029 – 12%
• 5.22% 2025 – 11%
• 5.63% 2026 – 8%
• 7.02% 2031 – 6%
• 7.38% 2027 – 6%
• Others – 28%

Read more: Beyond the Dip: India's Enduring Appeal for Foreign Investment!

Currency Volatility 

As per news reports, the Indian rupee has seen higher volatility in recent months. Implied volatility has averaged 4.26% since December 2024, compared to 2.24% in the prior 6 months. This period also coincides with the appointment of a new RBI governor.

Conclusion

Sharp inflows into Indian bonds in global indexes followed the announcement, but as the rate cut cycle began earlier this year, the narrowing India-US interest rate differential prompted these investors to shift their investments back home. The Reserve Bank of India’s Monetary Policy Committee will meet on June 4, with its decision expected on June 6. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

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