The selling comes as the rupee tested a series of lows against the dollar this month, eroding returns for foreigners.
Global funds have sold ₹14,300 crore ($1.6 billion) worth of bonds so far in December, according to data from Clearing Corporation of India. That marks the largest outflow since the so-called Fully Accessible Route – a framework within which selected government bonds have no restrictions on foreign investments – was created in 2020. The outflows could continue in the coming months, Standard Chartered Plc said.
The selling comes as the rupee tested a series of lows against the dollar this month, eroding returns for foreigners. For a euro-based investor, the rupee’s total return this year has been “as much as 10 percent negative,” while the Hungarian forint and Mexican peso have posted double-digit returns, according to Gama Asset Management SA.
“Foreign investors have reallocated their local bond investments in emerging markets 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 emerging currency in 2025, he added.
The outflows are putting pressure on Indian bonds, which are on track for their biggest monthly decline in four months in December, weighed down by heavy debt issuance by states. The sell-off has raised government borrowing costs even as India faces the toughest US tariffs in Asia. Expectations for deeper rate cuts are also fading after the central bank signaled higher inflation next year.
The rupee, Asia’s worst performer this year, weakened past the closely watched 91 per dollar mark to an all-time low in December before recovering after central bank interventions.
Year-end profit-taking also fueled some foreign selling as investors pared bond holdings and traded into interest rate derivatives after a jump in swap rates, said Vikas Jain, head of Bank of America Corp.’s India fixed income, currencies and commodities practice.
Still, developments next year have the potential to shift momentum back in favor of Indian securities. Should a long-awaited US trade deal materialize, it could revive foreign interest in local bonds as lower rates would ease pressure on the rupee. Analysts from the Australia and New Zealand Banking Group see potential for the currency to rise by as much as 1.5 percent to 88.5 percent per dollar if an agreement is reached.
The prospect of more global bond index compilers listing the securities next year could boost foreign demand for Indian debt, traders said. “India could also be included in the Bloomberg Global Index next year, which should help bring in more real money flows,” Jain said. India’s index-eligible bonds are already part of JPMorgan Chase & Co’s widely followed benchmark for emerging markets.
Bloomberg LP is the parent company of Bloomberg Index Services Limited (BISL), which manages indexes that compete with those of other providers. In September, BISL said it had sought customer feedback on whether India should be included in the Global Aggregate Index.
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Published on December 31, 2025
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