Foreign Purchases of Indian Bonds Hit Monthly Record
Miles Bennett
After India slashed capital-gains and interest taxes on foreign-held bonds in June, overseas investors bought a record ₹418 billion (~$4.4 bn) of FAR bonds in a single month; inclusion in the Bloomberg Global Aggregate Index now looks like a question of when, not if, with an estimated $15 bn in passive inflows to follow.
How big is ₹418 billion in context?
Foreign investors bought a net ₹418 billion of India's Fully Accessible Route (FAR) bonds — government securities open to overseas buyers without quota — in June, nearly double the previous record of ₹239 billion set in August 2024.
This means → the market repriced India's bond accessibility in a single month, front-loading demand that would normally spread over a quarter.
Caveat: June figures are partly inflated by a reclassification of existing foreign holdings into the FAR category; subsequent monthly inflows will likely moderate.
Why is the tax cut called "the last major barrier"?
On June 5, India cut capital-gains tax and interest-income tax on bonds held by foreign investors — the charge the market had long identified as the final obstacle to broad overseas participation in Indian sovereign debt.
In plain terms = foreign buyers used to pay a steep tax on both the coupons they earned and any trading gains; that cost has now dropped sharply, effectively handing them an entry ticket.
New bonds were simultaneously added to the FAR category, widening the investable universe.
What else is driving the flow beyond the tax cut?
ANZ economist Dhiraj Nim cited four tailwinds: tax relief, currency stability, deferred rate-hike expectations, and fading fiscal risk.
This reflects a regional divergence: Indonesia and the Philippines have already raised rates, while Reserve Bank of India Governor Sanjay Malhotra said last week that discussing tightening is "premature" — standing pat itself supports bond prices.
India's 10-year benchmark yield fell 25 basis points in June, the largest single-month drop in six years.
Which institutions are adding exposure?
Pictet Asset Management and Neuberger Berman are seeking to increase Indian bond holdings; M&G Investments shifted to a more constructive stance after the new policy.
This means → top-tier global asset managers have moved from "watching" to "building positions" — the signal matters more than any single ticket size.
Bond inflows have partly offset a record ~$30 bn net outflow from Indian equities this year; the rupee has rebounded more than 2% from its May all-time low near 97 per dollar.
What would Bloomberg Global Aggregate inclusion mean?
Goldman Sachs analyst Danny Suwanapruti's team wrote that these policy steps make India's inclusion in the Bloomberg Global Aggregate Index "increasingly a question of when, not if."
In plain terms = once included, every passive fund tracking the index must allocate to Indian bonds by weight — it is no longer a choice but a mandate.
The expected result: roughly $15 billion in passive inflows during a phased transition; Bloomberg Index Services said it will provide a further update around mid-2026.
Can this surge last?
Dhiraj Nim cautioned that if global financial conditions and U.S. rates stay tight, sustained inflows are not guaranteed.
June's headline number was amplified by the one-off reclassification; the monthly run-rate will likely step down.
This means → the short-term record has structural tailwinds behind it, but the real test is whether foreign investors keep buying on a net basis over the next three to six months — without another one-off catalyst.
Content is for reference only, not financial advice.