Regardless of their heavy promoting within the Indian inventory market, international portfolio traders (FPIs) have made a big funding in Indian bonds, injecting over Rs 51,730 crore (roughly $6 billion) by means of the Absolutely Accessible Route (FAR) since January this yr.
Of this, as a lot as Rs 29,044 crore got here from FPIs within the month of March, in keeping with information from the Nationwide Securities Depository Ltd (NSDL). The bond funding was additionally one of many causes for strengthening of the rupee within the final a couple of days. FPIs’ bond funding has occurred at a time when their promoting in inventory declined in March: after pulling out Rs 1.12 lakh crore in January and February, FPI outflows from shares declined to simply Rs 3,973 crore in March.
FAR bonds are authorities securities designated below the totally accessible route, which permits international traders unrestricted entry to spend money on these bonds with none funding caps. The RBI launched this route in March 2020 to extend international participation in India’s bond market.
FAR was created to permit non-residents unrestricted entry to particular G-secs, which had been earlier topic to FPI limits. Whereas FPI bond funding was anticipated to rise sharply as world companies added Indian bonds to their indices, the federal government and the Reserve Financial institution of India (RBI) turned cautious and excluded long-term authorities bonds with 14-year and 30-year tenors from FAR. The choice was apparently taken amid hypothesis about extra unrestricted inflows by FPIs, which might set off uncertainties and dangers sooner or later.
In June 2024, JP Morgan added 29 Indian authorities securities below the FAR programme to its extensively adopted Rising Market Bond Index (EMBI). This improvement was anticipated to reinforce international investor participation and appeal to substantial inflows into the Indian bond market.
World Index supplier FTSE Russell introduced that embrace FAR-eligible Indian authorities bonds in its FTSE Rising Markets Authorities Bond Index (EMGBI) from September 2025.
Bloomberg additionally mentioned final yr that it’s going to embrace Indian bonds in its Rising Market (EM) Native Forex Authorities Index and associated indices, efficient January 31, 2025. The inclusion of India FAR bonds to the Bloomberg EM indices will even be unfold over a ten-month interval.
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The change in FPI technique from sustained promoting to modest shopping for which was seen within the week ending March 21 continued with elevated depth for the week ended March 28. Huge shopping for by FPIs over the last a number of days of March considerably decreased the full FPI promoting in March to Rs 6,027 crore. Since FPIs invested Rs 2,055 crore by means of the first market, the web FPI promote determine for March is down at solely Rs 3,973 crore.
The reemergence of FPIs as consumers contributed to good about 6 per cent restoration in Nifty. “The valuations turned engaging after round 16 per cent correction from the September 2024 peak. The latest appreciation in rupee led to reversal of the momentum commerce in direction of US funding. India’s macros — GDP, IIP and CPI inflation — improved paving the way in which for a rally out there,” mentioned an analyst, citing causes for the revival in FPI curiosity.
Going ahead, the development in FPI flows will rely primarily on Trump’s reciprocal tariffs anticipated on April 2. If the tariffs should not extreme, the rally could proceed, mentioned an analyst. “All eyes are actually on the upcoming bulletins to be made by the US on seemingly tariff curbs imposition and potential fee lower by the RBI in its assessment assembly,” mentioned Manoj Purohit, Associate & Chief, FS Tax, Tax & Regulatory Providers, BDO India.
Then again, one of many key bulletins made by the SEBI in its board assembly has inspired the FPIs. Primarily based on the response of some massive banks on limiting the P-Notes buying and selling quantity, the prevailing threshold for granular helpful possession disclosures was elevated from Rs 25,000 crore to Rs 50,000 crore. FPIs having greater than 50 per cent of their portfolio in a single company group will proceed to abide by the sooner restrict. “Hopefully, this may convey again the much-needed quantity in trades and liquidity out there,” Purohit mentioned.