Foreign portfolio investors have achieved a historic milestone in Indian government securities, with ₹31,933 crore invested in June 2025 through the fully accessible route (FAR), marking the highest monthly inflow recorded under this route. According to The Financial Express, net inflows surged to ₹14,034 crore on Monday alone after the Reserve Bank of India added three more bonds to the FAR category. The current financial year has seen net inflows of ₹42,708 crore into government securities, with FPI holdings in G-Secs reaching ₹3.56 lakh crore as of June 16. As Madhavankutty G, chief economist at Canara Bank, noted, the improvement in inflows is the outcome of coordinated efforts by the RBI and government, with the peace deal announcement further improving market sentiment.
The 10-year G-Sec yield has declined 10 basis points to 6.88%, reflecting the impact of recent policy measures and improved market sentiment. According to The Financial Express, the benchmark 10-year government bond yield has benefited from the government's announcement on June 5 of removing tax on capital gains and interest income earned by FPIs, effective April 1. The RBI has also expanded the universe of G-Secs eligible under FAR by including 15-year, 30-year and 40-year maturity bonds. Following these measures, the rupee has appreciated more than 1% to 94.56 against the dollar, providing greater stability and boosting confidence among market participants. Anitha Rangan from RBL Bank expects inflows to continue to some extent, though the trajectory will depend on how the currency stabilises over time.
The government has implemented significant reforms to enhance foreign investor participation, with the Fully Accessible Route (FAR) introduced in 2020 and recent changes including scrapping taxes on interest income and gains for eligible foreign investors. The RBI has also introduced forex swap measures for overseas borrowings and FCNR deposits, among other steps. As Madhavankutty G from Canara Bank noted, there is increasing optimism that Indian bonds could be included in global indices following the removal of withholding tax and capital gains tax. The reforms could prove more consequential over the longer term by paving the way for India's inclusion in broader global debt benchmarks, with Niel Clement from BNP Paribas Asset Management noting that the steps would broaden opportunities for overseas investors.
Despite the record inflows, currency concerns remain a key challenge for foreign investors, though recent developments show improvement. The rupee's appreciation to 94.56 against the dollar following policy measures has provided greater market stability. However, Anitha Rangan from RBL Bank cautioned that while further inflows are expected, a significant surge appears unlikely, with a stronger pickup expected if the RBI hikes rates as that would enhance yields, especially on longer-term bonds. The outlook for foreign inflows will remain closely tied to the rupee's trajectory, with investors noting that the bigger issue for offshore investors continues to be currency stability.
