India's Sovereign Debt Faces Increased Scrutiny as FPIs Reduce Holdings

FPI Investments in FAR Government Securities Drop by ₹4,634 Crore Amid Middle East Tensions​

Foreign portfolio investors have reduced their exposure to India’s Fully Accessible Route government securities as global market volatility intensifies following the Middle East conflict. The shift reflects increasing caution among overseas investors due to rising crude oil prices, a weakening rupee, and higher bond yields.

FPI Holdings in FAR Securities Decline​

Data from the Clearing Corporation of India Ltd shows that total foreign portfolio investment in FAR government securities declined by about ₹4,634 crore since the conflict began.

As of Tuesday, FPI holdings stood at around ₹3.26 lakh crore, compared with approximately ₹3.31 lakh crore on February 27, before the geopolitical tensions escalated.

The decline highlights the growing risk aversion among global investors toward emerging market assets amid heightened geopolitical uncertainty.

Middle East Conflict Triggers Market Volatility​

Selling pressure intensified as global markets reacted sharply to the escalating tensions in the Middle East. The conflict has pushed crude oil prices higher and increased volatility across emerging markets.

Brent crude oil prices have moved above $100 per barrel and are currently trading near $108 per barrel. The surge in oil prices has raised concerns about inflationary pressures and India’s external balance.

Rupee Weakness and Rising Bond Yields Add Pressure​

At the same time, the Indian rupee has weakened sharply, falling below 92 against the US dollar. Meanwhile, the benchmark 10 year government bond yield has climbed to 6.7532 percent.

The combination of higher oil prices and currency depreciation has contributed to a cautious stance among foreign investors toward Indian sovereign debt.

Foreign Investors Turn Net Sellers in March​

Market participants indicated that FPIs have turned net sellers during March after strong buying activity earlier in the year.

Foreign investors had purchased around ₹22,000 crore worth of government securities during January and February.

The recent outflows mark a reversal from the earlier trend, when expectations surrounding India’s inclusion in global bond indices and relatively stable macroeconomic conditions had attracted foreign investors to local government debt.