FPIs invest record ₹41,773cr in government bonds this June
What's the story
Foreign Portfolio Investors (FPIs) have made a record net investment of ₹41,773 crore in Indian government bonds under the Reserve Bank of India's (RBI) Fully Accessible Route (FAR) in June. The massive inflow comes after a brief period of selling earlier this year and is largely driven by expectations that Indian government bonds could be included in the Global Aggregate Bond Index.
Investment surge
Major turnaround from previous months
The record inflow in June is a huge jump from the net investments of ₹5,000-5,500 crore seen in April and May. It also marks a major turnaround from March when FPIs were net sellers of government securities. The spike comes after several steps taken by the government and RBI to make Indian government bonds more appealing to foreign investors.
Increased ownership
Foreign ownership of government securities under FAR
The surge in FPI investments has increased total foreign holdings in government securities under the FAR to ₹3.73 lakh crore. Foreign investors now hold some 7.12% of all bonds available under this route. Their participation has also widened across eligible securities with 11 government securities now having foreign ownership above 10%. The highest overseas holding is at a whopping 21.5% for the 7.38% government security maturing in 2027.
Enhanced appeal
Government takes steps to boost foreign investment
The government's recent removal of the 12.5% capital gains tax and 20% withholding tax on interest for eligible government securities bought by foreign investors has made these investments more attractive. Meanwhile, RBI has widened the list of securities under the FAR, giving overseas investors a larger investment universe. Despite this, their participation in Indian equities remains subdued with equity inflows only starting to recover since mid-June.