Foreign portfolio investors (FPIs) made a strong comeback to India's government securities market in June, investing over USD 2.2 billion through the fully accessible route (FAR). This marks the biggest monthly inflow so far this year and the largest in 15 months, with June accounting for nearly 58% of total FAR investments in 2026.
Shift in FPI Activity
Compared to previous months, the robust recovery represents a substantial change. May saw only USD 0.46 billion in inflows, while March recorded net outflows of USD 1.25 billion and April saw marginal outflows of USD 0.01 billion. As of June 25, cumulative FPI inflows into FAR securities stood at USD 3.81 billion. The last comparable peak was in March 2025, when FPIs invested USD 3.34 billion.
Policy Reforms Drive Sentiment
The turnaround followed a series of policy changes on June 5 aimed at making Indian government securities more attractive to foreign investors. Key reforms included exempting FPI investments in government securities made on or after April 1, 2026, from capital gains tax and interest income. Additionally, the government expanded the list of FAR-eligible instruments to include 15-, 30-, and 40-year government bonds as well as Sovereign Green Bonds.
According to analysts, these reforms have improved post-tax returns for foreign investors and broadened market access. Market players observed significant institutional activity during the month, with one major foreign investor believed to have invested close to USD 1 billion in government securities with maturities of up to ten years.
Broader Factors at Play
Analysts note that foreign investment decisions are increasingly influenced by factors beyond yield differentials. India's macroeconomic stability, policy continuity, ease of market access, and favorable post-tax returns are becoming key drivers. This is particularly relevant as US Treasury yields remain high, making the Indian market more compelling on a risk-adjusted basis.
The June inflow underscores a shift in foreign investor sentiment, with the reforms addressing long-standing tax barriers and enhancing the investment case for Indian government securities. The government's decision to further liberalize access under the FAR framework has been widely welcomed by market participants.
