Global investors are backing away from Indian government bonds just months after buying them in record volumes, and a policy shift at home is a big reason why. The Reserve Bank of India raised its policy rate this month for the first time in almost four years and hinted at more hikes, prompting overseas investors to reassess how much rupee debt they want to hold. Surging oil prices and firmer US yields have added to the pressure.
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FAR Bond Outflows: The Key Numbers
Foreign investors sold a net 52 billion rupees ($546.3 million) of Fully Accessible Route (FAR) bonds in October, after selling 106 billion rupees in September. FAR securities carry no foreign-investment caps, so investors can enter and exit freely. That makes them a closely watched gauge of overseas appetite for Indian debt.
| Indicator | Latest reading |
| October net FAR selling | ₹52 billion |
| September net FAR selling | ₹106 billion |
| Foreign FAR holdings | ₹3.57 trillion, lowest since June 17 |
| Brent crude | Near $115 a barrel, up almost 12% in October |
| US 10-year yield | Up over 25 bps in two months |
| India 10-year yield | Up almost 30 bps in October |
Why Are Foreigners Selling Indian Government Bonds?
- Surging crude: Brent rose more than 14% in September and almost 12% in October. India imports most of its oil, so higher prices push up inflation and weigh on the rupee.
- RBI tightening: The central bank raised its policy rate this month, its first hike in almost four years, and signalled more could follow. Higher rates cut the value of existing bonds.
- Firmer US yields: Rising Treasury yields narrow the extra return that Indian debt offers.
- Weak rupee: The currency has been soft, which erodes dollar returns for foreign holders.
- Supply and liquidity: Invesco flagged possible RBI liquidity absorption and additional government-bond supply.
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From June’s Record Buying to Today’s Retreat
The current selling reverses a strong run. Foreign investors bought a record amount of Indian debt in June after tax relief and easier investment rules were announced. Hopes of inclusion in Bloomberg’s Global Aggregate Index added to the enthusiasm. By late July, investors were already dumping bonds, rattled by an oil spike and the lack of any index announcement. PIMCO’s Stephen Chang said tax reforms improved the structural outlook for inflows, but much of that optimism is already priced in
What Analysts Are Saying
Invesco’s Norbert Ling described the firm’s stance as broadly neutral and cautious in the near term. Even so, investors have not turned bearish on India for the long run. Strong economic growth and better market access keep them constructive, and Invesco would prefer to add duration during externally driven weakness.
Outlook: What to Watch Next
Whether outflows continue will depend largely on oil. A sustained fall from $115 a barrel would ease pressure on inflation and the rupee, while a further climb would do the opposite. The Reserve Bank of India’s next moves matter just as much, particularly the pace and size of any further rate hikes. Investors will also track US Treasury yields and the Federal Reserve’s next steps, since these shape how attractive Indian debt looks against safer alternatives. Two other factors are the volume of new government bonds the market must absorb and any fresh announcement on Indian bonds from global index providers.
Until oil and global yields cool, foreign demand for Indian bonds looks likely to stay muted. Longer-term interest depends on the economy’s growth and on continued improvements in market access.
