After investing in Indian debt for four consecutive months, Foreign Portfolio Investors (FPIs) have done a turnabout and withdrawn more than $2.27 billion in April—the largest monthly outflow since May 2020 and the first since November 2024.
The selloff is prompted by global and regional pressures such as profit-taking in Asia and deteriorating external conditions, say analysts. A key reason is the narrowing spread between Indian and US bond yields.
India’s 10-year bond yield fell from 6.6% to 6.33% since the start of April, while US yields have risen from 3.99% to 4.35%. This has narrowed the yield gap to about 200 basis points—the lowest since 2004.
India Ratings & Research’s Soumyajit Niyogi said that this lower return benefit has compelled foreign investors to reroute funds towards higher-yielding US debt.
US bond yields are increasing as a result of continuing market uncertainty, inflation fears, and threats of new trade tariffs, which have postponed expectations of rate cuts by the US Federal Reserve.
Despite global challenges, Indian bonds remain robustly supported domestically by diminishing inflation, potential rate cuts, favorable liquidity, and government borrowing schemes.
Gopal Tripathi of Jana Small Finance Bank said FPIs might have taken advantage to book profits when the rupee was strong—up almost 3% from recent lows—and when the 10-year bond was yielding a good premium to the repo.
