Foreign investors purchased 418 billion rupees (4.4 billion US dollars) worth of government securities under the Fully Accessible Route (FAR) during June, according to data released by Clearing Corporation of India Limited. The figure is nearly double the previous monthly record of 239 billion rupees set in August 2024.
The surge followed the government's June 5 decision to abolish taxes on capital gains and interest income earned by foreign investors on eligible government bonds. The move removed one of the final obstacles preventing broader international participation in India's sovereign debt market. The addition of new securities under the Fully Accessible Route also increased the appeal of these bonds. Continued foreign investment could help reduce the government's borrowing costs while providing support to the Indian rupee during a period of global United States dollar strength.
Dhiraj Nim, an economist at Australia and New Zealand Banking Group, said that several developments had encouraged overseas investors to increase purchases of Indian government bonds. These included tax reductions, currency stability, expectations of delayed interest rate increases, and easing fiscal risks. However, he cautioned that the pace of inflows may not continue if global financial conditions tighten further and interest rates in the United States continue to rise.
The latest inflows indicate a strong recovery in India's financial markets following several months of weaker investor activity. The positive trend has also been reflected in other asset classes. Indian equities outperformed other emerging markets during June, while the Indian rupee ranked as Asia's second-best-performing currency over the same period.
India has resisted the interest rate increases seen in several regional economies, including Indonesia and the Philippines. This policy stance supported the bond market, with the benchmark 10-year government bond yield declining by 25 basis points during June, marking its biggest monthly fall in six years. Reserve Bank of India Governor Sanjay Malhotra stated last week that it was "premature" to discuss monetary tightening. He added that policymakers would have adopted a more hawkish position during the June policy meeting if they had believed higher interest rates were necessary.
Global investment firms have also shown increasing interest in Indian sovereign debt. Pictet Asset Management and Neuberger Berman Group LLC are seeking to expand their exposure to Indian bonds, while M&G Investments has adopted a more positive outlook following the government's recent policy measures. The record inflows into the debt market have also helped offset nearly 30 billion US dollars in foreign outflows from Indian equities so far this year. Meanwhile, the Indian rupee has appreciated by more than two percent since falling to a record low of nearly 97 against the United States dollar in May.
Despite the record inflows, market participants noted that June's Clearing Corporation of India Limited data were partially influenced by the addition of more government securities to the Fully Accessible Route category. Existing foreign holdings in these newly eligible bonds were reclassified under the scheme, increasing the reported monthly figures. As a result, analysts believe inflows may moderate in the coming months.
Nevertheless, the broader outlook continues to indicate increasing overseas participation in India's government bond market. Analysts at Goldman, led by Danny Suwanapruti, stated that recent policy measures make India's eventual inclusion in the Bloomberg Global Aggregate Index increasingly a matter of timing rather than direction. They estimated that such inclusion could generate approximately 15 billion US dollars in passive investment inflows during the index's phased implementation period. Bloomberg Index Services Limited has stated that it will provide a further update regarding India's inclusion by the middle of 2026.
The record foreign investment in India's government bond market reflects the growing confidence of global investors following significant policy reforms. While future inflows may fluctuate depending on global financial conditions, the government's tax changes and improving market environment have strengthened India's position as an increasingly attractive destination for international sovereign debt investment.
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