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In 2026, foreign portfolio investors (FPIs) allocated the majority of their investments to Indian debt rather than equities. FPIs invested ₹63,784 [1] crore in Indian bonds and, during the same timeframe, withdrew a total of ₹2.74 lakh crore [1] from the Indian stock market. Data from the National Securities Depository Ltd (NSDL) indicates that in June 2026, inflows of Indian debt surpassed the outflows of Indian equities, after the gap had increasingly widened since the start of the year.
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Equity Outflows vs Debt Inflows: The 2026 Divergence
In the first half of 2026, FPIs sold a net total of ₹2.74 lakh crore (USD 29.28 billion) worth of Indian equities. The amount sold in that half of the year was already greater than the total amount sold in 2025, of ₹1.66 lakh crore [1] (USD 18.90 billion). Markets for Indian debt tell a completely different story. In the same time period, FPIs invested a net total of ₹63,784 crore (USD 6.8 billion) in Indian bonds.
2026 debt inflows by route [2]:
- Fully Accessible Route (FAR): ₹36,265 crore
- General limit: ₹27,225 crore
- Voluntary Retention Route (VRR): ₹294 crore
June 2026 debt inflows by route [2]:
- FAR: ₹21,652 crore ($2.27 billion)
- General limit: ₹30,620 crore ($3.2 billion)
- VRR: ₹3,246 crore
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What’s Pulling FPIs Toward Indian Bonds
Experts attribute the recent change to a combination of government initiatives and positive economic trends:
- The FAR expansion by RBI now encompasses all new issuances of 15-year, 30-year, and 40-year government securities.
- The removal of withholding tax on specific government bonds has increased their appeal to foreign investors
- The decline in crude oil prices, which have fallen from a peak of approximately $120 per barrel in late April to nearly $70 per barrel [3], is alleviating the strain on India’s fiscal and current account deficits
- The rupee has recently made a recovery, bouncing back from its lowest point of 96.96/USD in May to now being above 95 [4]
- In its June review, the RBI’s Monetary Policy Committee maintained a consistent approach by holding the repo rate at 5.25 percent.
- The possibility of global bond index inclusion may lead to a significant influx of passive fund flows into Indian government debt
Puneet Pal [1], head of fixed income at PGIM India Mutual Fund, said the operating environment for debt investing has improved for FPIs, which explains the rise in inflows. He added, “The measures by the government and RBI have increased the probability of inclusion of Indian government bonds coming under FAR into the Bloomberg Global aggregate Bond Index, which can lead to $25-30 billion of inflows over the next one year.”
Murthy Nagarajan [1], head of income at Tata Mutual Fund, linked the renewed foreign interest to expectations of rupee appreciation, the withdrawal of the withholding tax, and reduced odds of a near-term rate hike given softer oil prices.
Why Equities Remain Out of Favour
Although there have been positive views on debt, FPIs have consistently sold off Indian equities throughout the year. This is believed to be due to:
- Surprisingly low domestic corporate earnings growth
- Enhanced prospects for technology and AI-related stocks abroad
- Rising US bond yields are redirecting international investments from developing economies
- Amidst unpredictability on the geopolitical front, a cautionary stance continues on a global scale
Outlook: Bloomberg Index Inclusion in Focus
Fund managers are anticipating continued positive inflows from FPIs, although the rate of these inflows may be influenced by global trends in interest rates and risk perception. Additionally, experts predict that India’s forex reserves will receive a boost of approximately $50 billion through the RBI’s special window for foreign currency non-resident (FCNR-B) deposits and external commercial borrowings in the fiscal year 2026-27. Looking ahead, the potential inclusion of India in the Bloomberg Global Aggregate Bond Index is seen as a key factor that could drive growth in the debt market, while equity flows are expected to remain subdued in the immediate future.
Sources
- https://www.businesstoday.in/latest/economy/story/why-fpis-poured-money-into-indias-debt-market-in-june-even-as-they-sold-equities-540277-2026-07-01
- https://www.business-standard.com/markets/news/fpi-debt-inflows-surpass-equity-outflows-in-june-amid-strong-bond-demand-126063001361_1.html
- https://tradingeconomics.com/commodity/brent-crude-oil
- https://www.thehindu.com/business/markets/rupee-falls-10-paise-to-9528-against-us-dollar-in-early-trade/article71188061.ece
Note: All figures are as reported by these outlets as of July 1-6, 2026. Readers can independently verify real-time FPI flow data on the NSDL FPI portal and RBI policy details on the RBI official website.
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