Foreigners dump record Indian bonds as weak rupee erodes returns
Indian sovereign bonds face record foreign outflows in December as rupee weakness, fading rate-cut expectations and global reallocations weigh on sentiment, pressuring bond prices and borrowing costs despite prospects of index inclusion boosting future inflows.
Synopsis
Indian sovereign bonds face record foreign outflows in December as rupee weakness, fading rate-cut expectations and global reallocations weigh on sentiment, pressuring bond prices and borrowing costs despite prospects of index inclusion boosting future inflows.
Bloomberg
Foreign investors pare Indian bond exposure as rupee weakness and shifting rate expectations trigger record monthly outflows.
Indian sovereign bonds eligible for inclusion in global indexes are on track for a record monthly outflow, as a weaker rupee and signs the central bank is nearing the end of its interest-rate cut cycle weigh on sentiment.
Global funds have sold 143 billion rupees ($1.6 billion) of bonds so far in December, according to Clearing Corporation of India data. That marks the biggest outflow since the so-called Fully Accessible Route — a framework under which select government bonds have no foreign investment restrictions - was created in 2020. Outflows may continue in the coming months, Standard Chartered Plc said.
The selling comes as the rupee tested a series of record lows against the dollar this month, eroding returns for foreigners. For a euro-based investor, the rupee’s total return has been “a whopping negative 10%” this year, while Hungary’s forint and the Mexican peso have posted double-digit returns, according to Gama Asset Management SA.
Foreigners dump record Indian bonds as weak rupee erodes returns
Indian sovereign bonds face record foreign outflows in December as rupee weakness, fading rate-cut expectations and global reallocations weigh on sentiment, pressuring bond prices and borrowing costs despite prospects of index inclusion boosting future inflows.
“Foreign investors have been reallocating their emerging-market local bond investments to countries with higher yields and greater potential for currency appreciation,” said Rajeev De Mello, global macro portfolio manager at Gama Asset. Including carry, the rupee is the worst-performing major EM currency in 2025, he added.
Bloomberg
The outflows are pressuring Indian bonds, which are on track for their biggest monthly decline in four months in December, weighed by heavy debt issuance from states. The selloff has pushed up government borrowing costs even as India faces the harshest US tariffs in Asia. Expectations for deeper interest-rate cuts are also fading after the central bank signaled higher inflation next year.