FPI Infusion in FAR Bonds Reaches Record High in Five Years: What It Means for Investors

In March, foreign portfolio investors (FPIs) made a significant move by channeling ₹21,600 crore into the Indian market, marking it as the second-largest inflow of 2023, just behind the impressive ₹24,000 crore seen in August. This momentum highlights a resilient stance from bulls in the face of bearish pressures observed during the fiscal year 2025.

Insights on Foreign Investments in Indian Bonds

According to Deepak Sood, a partner and head of fixed income at Alpha Alternatives, the offshore flow from index funds into Indian sovereign bonds has largely met expectations. He noted, “Despite some fluctuations caused by the rupee’s sharp decline, which led active traders to reduce their positions, passive index-tracking funds have continued to increase their investments in line with rising index weight.”

Additionally, March experienced a notable rise in foreign participation in high-yield corporate bonds. There has been a particular spike in interest for special situation financing, especially concerning acquisition-linked debt, which has attracted concentrated FPI inflows in this sector.

Factors Influencing Bond Yields and Foreign Flows

Several factors have contributed to the rise in foreign inflows, including:

Index inclusion
Fiscal consolidation
Easing of US Treasury yields

These elements have collectively contributed to the softening of bond yields over the past year. Experts emphasize that fluctuations in US Treasury yields and currency movements will be critical in shaping future foreign investments in Indian debt markets.

A dealer from a primary dealership shared insights, stating, “Foreign investors are actively purchasing longer-term government bonds, anticipating a decline in interest rates.” He added that a further reduction in US Treasury yields would make Indian government bonds even more attractive to foreign investors.

In summary, the current landscape of foreign investments in Indian bonds is dynamic, with key trends and shifts indicating a positive outlook. As global economic factors evolve, Indian markets remain a focal point for strategic investment opportunities.