FPIs Sell ₹8,000 Crore Bonds as Hedging Costs Surge
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- FPIs sold ₹8,000 crore in Indian bonds after RBI curbs on banks' and corporates' offshore open positions lifted hedging costs, per CCIL data.
- Daily FPI outflows accelerated to ₹3,286–4,033 crore post-curbs, up from a ₹400–2,000 crore range that had included sporadic bouts of buying before the curbs.
- The 1-year USDINR forward implied yield hit 3.96% versus 2% on March 30 — the highest in nearly two decades on hedging demand.
- The 10-year benchmark government bond yield rose 38 basis points, from 6.66% on February 27 to 7.04% as of Tuesday.
- RBI released curbs on banks' open positions on March 27 and curbs on corporates' offshore open positions on April 1.
- India eliminated long-term capital gains tax on FII investments in government securities effective April 1, 2026, while also expanding the Fully Accessible Route and raising NRI/OCI investment limits to attract foreign capital.
- DBS Bank's Sameer Karyatt said high hedging costs are diminishing net interest income and eroding overall returns, and a senior foreign-bank trader warned the elevated offshore forward premium could spill increased selling into other asset classes.
Why it matters: RBI's hedging curbs doubled daily FPI bond outflows past ₹4,000 crore and pushed 1-year forward yields to a near-two-decade high of 3.96%. The 10-year benchmark has already climbed 38 bps to 7.04%, and DBS warns sustained hedging costs will make FPI holdings 'considerably more expensive' — while India simultaneously scraps LTCG tax on FII bonds in a parallel bid to lure the same capital out the door.
