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India Debt Attracts Record Foreign Funds, Equities See Exit
6 Jul
Summary
- Foreign investors poured record ₹41,773 crore into Indian debt in June.
- Equities saw a significant outflow of ₹49,340 crore during the same period.
- Inclusion in Bloomberg's global index boosts Indian sovereign debt appeal.
Overseas funds significantly increased their investment in Indian debt during June, injecting a record ₹41,773 crore into securities accessible via the fully accessible route (FAR). In stark contrast, these same investors withdrew ₹49,340 crore from Indian equities in the same month.
This shift in focus is largely attributed to recent government measures, including tax waivers on capital gains and interest for sovereign debt, alongside an expanded investable universe. These actions have fueled expectations that Indian debt will be incorporated into Bloomberg's global aggregate index, a development that could attract substantial passive fund flows.
Despite the positive sentiment towards debt, Indian equities have struggled, experiencing an aggregate outflow of ₹2.73 lakh crore year-to-date. The Nifty 50 has declined over 8% in 2026, with the IT sector being a notable laggard, down nearly 30%.
The strengthening rupee, which recovered from record lows in May, has further enhanced the attractiveness of Indian sovereign debt. This has led to a reduction in benchmark yields, alleviating pressure for policy rate hikes despite inflationary concerns stemming from geopolitical events.
