Foreign Portfolio Investors (FPIs) continued their selling streak in Indian government securities (G-Secs) in June, offloading ₹4,994 crore worth of bonds during the month, according to data released by NSDL and Clearing Corporation of India Ltd (CCIL). This marks the third consecutive month of net outflows from Indian debt markets, raising concerns over bond market volatility ahead of potential global interest rate movements.
Key Highlights
✅ June FPI G-Sec net selling: ₹4,994 crore
✅ May net selling: ₹3,208 crore
✅ April net selling: ₹4,012 crore
✅ 2025 YTD FPI debt flow: Net outflow of ₹21,473 crore
✅ Major selling in longer tenure papers (10-30 years)
Why Are FPIs Selling G-Secs?
Analysts cite multiple factors behind sustained outflows from Indian government bonds:
- Global bond yields rising: US 10-year Treasury yields remain above 4.30%, reducing the carry trade attractiveness of Indian G-Secs.
- Strengthening USD: FPIs are wary of INR depreciation risks amid global risk-off sentiment.
- Awaiting inclusion clarity: Though India’s inclusion in JPMorgan GBI-EM Global Diversified index starts from June 28, staggered inflows are expected; meanwhile, some investors are booking profits.
- Domestic inflation concerns: Rising food inflation could delay RBI rate cuts, capping bond prices.
FPI Debt Flow Trend (2025)
| Month | Debt (G-Sec + SDL + Corp Bonds) Net Flow (₹ crore) | G-Sec Net Flow (₹ crore) |
|---|---|---|
| Jan | +19,193 | +12,452 |
| Feb | +14,287 | +8,335 |
| Mar | +10,482 | +6,741 |
| Apr | -4,012 | -2,990 |
| May | -3,208 | -1,880 |
| June | -5,244 | -4,994 |
(Source: NSDL, CCIL provisional data)
Detailed Breakdown: June FPI Debt Flows
| Segment | Net Flow (₹ crore) |
|---|---|
| Government Securities (G-Secs) | -4,994 |
| State Development Loans (SDLs) | -220 |
| Corporate Bonds | +254 |
| Total Debt Flow | -4,960 |
Which Tenures Saw Maximum Selling?
FPIs predominantly sold long-term benchmark bonds:
- 10-year benchmark (7.18% GS 2033)
- 14-year (7.30% GS 2039)
- 30-year (7.54% GS 2052)
This reflects profit booking ahead of inclusion-based inflows starting late June and July.
Impact Of JPMorgan GBI-EM Index Inclusion
India’s inclusion in the JP Morgan GBI-EM Global Diversified index from June 28 is expected to:
✅ Bring inflows of USD 20-25 billion over next 10 months
✅ Increase foreign holding of G-Secs (currently <2% of outstanding stock)
✅ Flatten yield curve with higher demand for 10-30 year tenures
However, the recent selloff indicates that some funds are rebalancing portfolios before final allocations begin.
Market Reaction
- 10-year G-sec yield: Rose to 7.03% on June 28 from 6.98% a week earlier.
- Rupee: Remained stable near 83.48/USD due to RBI’s forex market interventions.
- Banking sector: Higher yields may increase bond portfolio MTM risks in Q1 FY26 results.
Expert Views
1. Global Factors Dominating
Madhavi Arora, Lead Economist, Emkay Global:
“FPI flows are dictated by US rate expectations. Fed cuts will determine durable debt inflows despite index inclusion optimism.”
2. Temporary Profit Booking
Suyash Choudhary, Head of Fixed Income, Bandhan Mutual Fund:
“Recent selling is partly due to portfolio adjustments ahead of index inclusion. Net flows will turn positive from Q3 FY26 as index-based allocations ramp up.”
FPI Debt Holdings – Current Status
| Date | FPI G-Sec Holding (₹ crore) | Share in Outstanding (%) |
|---|---|---|
| Mar-25 | 1,63,482 | 1.80 |
| Apr-25 | 1,60,492 | 1.76 |
| May-25 | 1,58,612 | 1.74 |
| June-25 | 1,53,618 | 1.68 |
Government’s Borrowing Programme
The Centre plans to borrow ₹7.50 lakh crore in H1 FY26, of which:
✅ ~58% is targeted in 5-14 year maturities
✅ Green bonds worth ₹12,000 crore were also issued to attract ESG-focused funds
Future Outlook For FPI Debt Flows
| Factor | Impact |
|---|---|
| US Fed Rate Cut Timeline | Earlier cuts will improve debt inflows |
| India’s Macro Stability | Low fiscal slippage and stable inflation to attract investors |
| Index Inclusion Phases | Gradual ramp-up to bring USD 20-25 billion by FY26 |
| RBI Policy | No immediate cuts; focus remains on inflation management |
Potential Risks
❌ Global risk-off sentiment due to geopolitical tensions
❌ Crude oil price spikes increasing fiscal deficit risks
❌ Domestic inflation spikes delaying RBI’s accommodative stance
Long-Term Perspective
Despite near-term outflows, analysts remain bullish on India’s bond market:
✅ Stable currency
✅ Robust growth (7.2% projected for FY26)
✅ Structural reforms improving fiscal prudence
Conclusion
Foreign Portfolio Investors continued to trim their holdings in Indian government securities in June, selling ₹4,994 crore worth of bonds amid global yield pressures and profit booking ahead of index inclusion-based inflows. While near-term flows remain volatile, the medium-to-long-term outlook is positive, driven by India’s inclusion in global bond indices, macroeconomic stability, and deepening domestic debt markets.
As RBI and the government maintain fiscal and monetary discipline, FPI participation in Indian bonds is expected to rise, strengthening India’s position in global financial markets and providing an alternative funding source for infrastructure and development projects.
Disclaimer
This article is based on NSDL, CCIL, and market expert data as of June 30, 2025. Figures are provisional and subject to revision. Readers are advised to consult certified financial advisors before making investment decisions based on market flows.
