Foreign Investors Flee Indian Stocks, Pile Into Bonds
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- India scrapped taxes on overseas bond investors last month, eliminating the 12.5% long-term capital gains tax and 20% withholding tax, clearing the path for inclusion in the Bloomberg Global Aggregate Bond Index expected in early 2027
- Foreign investors purchased $7.7 billion in Indian debt so far in 2026, with $5.8 billion arriving in June alone after the tax cut — already surpassing the $6.6 billion total for all of 2025, per NSDL data
- India could secure roughly 0.7% weightage in the Bloomberg Global Aggregate Bond Index, potentially drawing $25-27 billion in flows by financial year 2028, per DBS Bank's Ashish Vaidya
- Foreign investors sold $27.6 billion in Indian direct equities in 2026 so far as stocks lost appeal amid AI-driven momentum in global markets
- India expanded its Fully Accessible Route to include 15-, 30-, and 40-year government securities, attracting $2.3 billion in June — the highest monthly FAR inflow in 14 months
- India's balance of payments deficit widened to $23.6 billion in the fiscal year ending March 2026, up from $5 billion a year earlier, with bond inflows expected to narrow the gap and support the rupee
- Bloomberg launched an electronic trading workflow for Indian government bonds, enabling foreign portfolio investors to access liquidity through its terminal
Why it matters: Foreign investors have already injected $7.7 billion into Indian debt in 2026 — surpassing all of 2025 — while dumping $27.6 billion in stocks. These bond flows are positioned to narrow India's $23.6 billion balance of payments deficit and shore up a rupee pressured by equity outflows and rising oil import costs, with the full Bloomberg index inclusion still ahead.
