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Foreign Investors Flee Indian Debt Amidst Global Turmoil
22 Mar
Summary
- Foreign investors net sold Rs 13,027 crore of government debt in March.
- Geopolitical tensions and rising crude oil prices impact sentiment.
- RBI intervention stabilises bond yields despite FPI outflows.
Foreign portfolio investor (FPI) flows into Indian government securities under the fully accessible route (FAR) turned negative in March, marking a reversal from earlier inflows. Global risk sentiment has weakened significantly, prompting foreign investors to become net sellers to the tune of Rs 13,027 crore as of the current date.
This shift is largely attributed to escalating geopolitical tensions in West Asia, which have sent crude oil prices soaring above $100 per barrel. Such price increases raise concerns about imported inflation and a widening current account deficit for India, consequently pressuring the rupee and diminishing returns for foreign investors.
Furthermore, rising US Treasury yields are making emerging market debt less appealing, leading to a global capital shift away from countries like India. Currency volatility and higher global yields have reduced the attractiveness of hedged returns on FAR bonds for foreign investors.
Despite the significant outflows, the impact on domestic bond yields has been mitigated by the Reserve Bank of India's proactive measures, including bond purchases and liquidity management. These actions have been crucial in maintaining stability across the sovereign yield curve even as foreign demand waned. Analysts anticipate yields to remain range-bound in the near term.
