Despite their heavy selling in the Indian stock market, foreign portfolio investors (FPIs) have made a significant investment in Indian bonds, injecting over Rs 51,730 crore (approximately $6 billion) through the Fully Accessible Route (FAR) since January this year.
Of this, as much as Rs 29,044 crore came from FPIs in the month of March, according to data from the National Securities Depository Ltd (NSDL). The bond investment was also one of the reasons for strengthening of the rupee in the last a few days. FPIs’ bond investment has happened at a time when their selling in stock declined in March: after pulling out Rs 1.12 lakh crore in January and February, FPI outflows from stocks declined to just Rs 3,973 crore in March.
FAR bonds are government securities designated under the fully accessible route, which allows foreign investors unrestricted access to invest in these bonds without any investment caps. The RBI introduced this route in March 2020 to increase foreign participation in India’s bond market.
FAR was created to allow non-residents unrestricted access to specific G-secs, which were earlier subject to FPI limits. While FPI bond investment was expected to rise sharply as global firms added Indian bonds to their indices, the government and the Reserve Bank of India (RBI) turned cautious and excluded long-term government bonds with 14-year and 30-year tenors from FAR. The decision was apparently taken amid speculation about more unrestricted inflows by FPIs, which can trigger uncertainties and risks in the future.
In June 2024, JP Morgan added 29 Indian government securities under the FAR programme to its widely followed Emerging Market Bond Index (EMBI). This development was expected to enhance foreign investor participation and attract substantial inflows into the Indian bond market.
Global Index provider FTSE Russell announced that include FAR-eligible Indian government bonds in its FTSE Emerging Markets Government Bond Index (EMGBI) from September 2025.
Bloomberg also said last year that it will include Indian bonds in its Emerging Market (EM) Local Currency Government Index and related indices, effective January 31, 2025. The inclusion of India FAR bonds to the Bloomberg EM indices will also be spread over a ten-month period.
Story continues below this ad
The change in FPI strategy from sustained selling to modest buying which was visible in the week ending March 21 continued with increased intensity for the week ended March 28. Big buying by FPIs during the last several days of March substantially reduced the total FPI selling in March to Rs 6,027 crore. Since FPIs invested Rs 2,055 crore through the primary market, the net FPI sell figure for March is down at only Rs 3,973 crore.
The reemergence of FPIs as buyers contributed to smart about 6 per cent recovery in Nifty. “The valuations turned attractive after around 16 per cent correction from the September 2024 peak. The recent appreciation in rupee led to reversal of the momentum trade towards US investment. India’s macros — GDP, IIP and CPI inflation — improved paving the way for a rally in the market,” said an analyst, citing reasons for the revival in FPI interest.
Going forward, the trend in FPI flows will depend mainly on Trump’s reciprocal tariffs expected on April 2. If the tariffs are not severe, the rally may continue, said an analyst. “All eyes are now on the upcoming announcements to be made by the US on likely tariff curbs imposition and potential rate cut by the RBI in its review meeting,” said Manoj Purohit, Partner & Leader, FS Tax, Tax & Regulatory Services, BDO India.
On the other hand, one of the key announcements made by the SEBI in its board meeting has encouraged the FPIs. Based on the reaction of some large banks on restricting the P-Notes trading volume, the existing threshold for granular beneficial ownership disclosures was increased from Rs 25,000 crore to Rs 50,000 crore. FPIs having more than 50 per cent of their portfolio in a single corporate group will continue to abide by the earlier limit. “Hopefully, this will bring back the much-needed volume in trades and liquidity in the market,” Purohit said.