Foreign buying of Indian bonds hits record after tax relief
What's the story
India's bond market has witnessed a record surge in foreign investment, with funds pouring in $4.4 billion (about ₹41,800 crore) last month. The spike comes after the government announced tax cuts on capital gains and interest income from bonds on June 5. The move was aimed at attracting more global funds to invest in India's sovereign debt.
Market response
Surge in foreign investment
The introduction of new bonds in the Fully Accessible Route (FAR) category also contributed to the increased attractiveness of Indian debt. The surge in foreign investment is almost double the previous monthly record of ₹23,900 crore set in August 2024. "The number of steps, tax cuts, currency stability, delayed hike expectations and receding fiscal risks, may have all given a good reason for foreign investors to purchase Indian bonds," said Dhiraj Nim from Australia & New Zealand Banking Group.
Market resurgence
Recovery for South Asian market
The surge in foreign investment marks a major recovery for the South Asian market after months of weakness. This trend is also reflected in other areas of the market, with Indian stocks outperforming their emerging-market peers in June. Despite these gains, Nim cautioned that this inflow may not be sustainable "if global financial conditions and US rates continue to tighten."
Rate policy
RBI's stance on rate hike
Reserve Bank of India (RBI) Governor Sanjay Malhotra has said that it's "premature" to talk about fiscal tightening. He added that if policymakers thought higher rates were necessary, they would have taken a more hawkish approach at the June meeting. This stance has helped support bonds as the benchmark 10-year yield fell 25 basis points in June, its biggest drop in six years.
Investment interest
International firms increase exposure to Indian debt
International firms like Pictet Asset Management and Neuberger Berman Group LLC are looking to increase their exposure to Indian debt. M&G Investments has also turned more positive after the recent policy changes. The inflow of funds into the bond market has somewhat offset record outflows from equities of nearly $30 billion this year.