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Informist, Thursday, Jul. 9, 2026

 

NEW DELHI – Foreign portfolio investors are set to be net buyers of fully accessible route government bonds for the 25th straight session on Thursday, adding nearly INR 500 billion to their holdings over the period, according to data compiled from the Clearing Corp. of India Ltd. The streak began on Jun. 4, a day before the government exempted FPIs from capital gains and withholding tax on government securities, and has continued for over a month.

 

During the period, FPI holdings of index-eligible government bonds have increased by INR 496 billion to a record INR 3.73 trillion, according to data from the Clearing Corp. of India as of 1530 IST. The Reserve Bank of India's reclassification of three bonds maturing in 15 years or more boosted holdings under the route by INR 119 billion in June.

 

The buying was initially led by short-term bonds, which gained significantly after the RBI's Monetary Policy Committee held off on a rate hike on Jun. 5. The central bank's measures to attract foreign capital, announced the same day, eased concerns that the rate-setting panel would need to raise rates to defend the domestic currency. Rate-sensitive short-term bonds also gained as crude oil prices tumbled in June following a truce in the conflict in West Asia.

 

Consequently, the five-year benchmark 6.36%, 2031 bond's yield has eased around 40 basis points since Jun. 4 to 6.43% Thursday. FPI holdings of the 2031 bond have more than doubled over this period to INR 134.03 billion, accounting for 16.6% of its outstanding. Foreign investors also hold over 19% of the outstanding of the 5.74%, 2026 gilt, 7.38%, 2027 gilt and 7.06%, 2028 gilt under the fully accessible route, which has no statutory limit for foreign holdings.

 

"FPIs have been extremely bullish on gilts and that consistency has translated into prices," a dealer at a primary dealership said. "The initial activity came in the usual segment, under five years, but that activity has gradually expanded over time to other tenures."

 

The tax changes effectively removed a 20% hit to FPIs' coupon income, aiding demand for higher-yielding, longer-tenured bonds. Several FPIs also ramped up purchases of the 15-year benchmark 6.68%, 2040 bond, the 30-year benchmark 7.24%, 2055 gilt and the 7.71%, 2066 gilt, which were added to the fully accessible route last month. This was to get ahead of global bond indices rebalancing the weights of India's gilts, which would require passive investors to increasingly track these securities that they did not hold, dealers said.

 

The net figure has remained positive despite rounds of profit-taking by FPIs, driven by interest from investors across tenures, dealers said. Some foreign investors have bought ultra short-term bonds to better manage liabilities in India, while others have become more active traders in the liquid segments due to improved market access, dealers said.

 

Global bond trading platform operators MarketAxess and TradeWeb have linked their offerings to the RBI's Negotiating Dealing System – Order Matching platform, which facilitates gilt trading. Bloomberg has also set up a completely electronic workflow using a similar setup, it said Thursday. 

 

In addition to the measures taken for them, FPIs have also picked up gilts amid widespread expectations of India's inclusion in Bloomberg's flagship Global Aggregate Index for local-currency debt. DBS Bank India expects increased FPI inflows in July as well, following the record June, with the index provider expected to announce its inclusion this month. In January, Bloomberg had said the review was ongoing and the next update would be given in mid-2026. This would open the door to over $25 billion in passive investment into India's bonds, based on the expected weight of 0.8-1.0%. However, passive flows are likely to begin only in FY28, limiting some traders' hopes that the record run through Thursday will continue.

 

"Now that you mention it, it has been a good run, but let's see if that will sustain," a dealer at a foreign bank said. "I feel a lot of this has come due to the recent enthusiasm on India's bonds, the newsflow, the Bloomberg Agg (Global Aggregate Index) inclusion. Even directionally, we feel it will be difficult to sustain this (buying) once the announcement comes and all front-runners want to take profits."  End

 

US$1 = INR 95.39

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Saji George Titus

 

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