In a surprising twist, foreign investors are now pulling out their money from the Indian bond market, even though India’s economy is stable and inflation is under control. On the other side, the United States is dealing with high inflation and market uncertainty, yet foreign investors are moving their funds there. So, what’s going on? Let’s break it down in simple terms.
Why Are Investors Choosing US Bonds Over Indian Bonds?
The main reason is simple: higher returns from American bonds.
In recent months, the interest rate (or return) on US 10-year government bonds has increased from around 3.99% to 4.35%. On the other hand, India’s 10-year government bond return has dropped from 6.6% to 6.33%. This means the gap between the two returns is getting smaller.
Earlier, foreign investors were happy to invest in Indian bonds because the return was much higher compared to US bonds. But now, since that difference is shrinking, the attraction towards Indian bonds is reducing. Investors are going back to the US market where they feel their money is safer and returns are growing.
What Changed in April?
According to a report by Moneycontrol, foreign portfolio investors (FPIs) have taken out over $2.27 billion from the Indian bond market in April alone. This is the biggest outflow since May 2020, and the first big withdrawal since November 2024.
For the last four months, FPIs were putting money into India. But this sudden U-turn shows a shift in their confidence and interest. Experts believe that global and regional factors are influencing this decision.
Global Conditions Behind the Shift
There are a few global reasons behind this move:
- US inflation is still high, and the market there is very uncertain.
- The US central bank, the Federal Reserve, is not cutting interest rates anytime soon because of this instability.
- As interest rates stay high, returns from US bonds are becoming more attractive.
- There’s also fear of new trade tariffs, adding to the global worry.
All these factors are pushing foreign investors to move money where they feel returns will be higher and safer — which is currently the US.
India’s Market Is Still in Good Shape
Ironically, while foreign investors are leaving, India’s economic environment is looking good:
- Inflation in India is under control and falling slowly.
- The Indian bond market is stable.
- There is no shortage of cash in the market.
- The government is buying bonds from the open market, which supports prices.
- The Indian rupee has also gained strength by around 3% from its recent low.
Experts believe India is still offering good long-term opportunities. According to Gopal Tripathi, Treasury Head at Jan Small Finance Bank, the return on India’s 10-year bond is around 1% higher than the repo rate of 5.25% to 5.50%. This is seen as a good level by many domestic players.
What Are Experts Saying?
Saumyajit Nayogi from India Ratings and Research explains that foreign investors are always looking for better returns. Right now, with rising US bond returns and uncertainty about interest rate cuts, investors are seeing more value in American markets.
Meanwhile, in Asian markets, including India, many investors are locking in profits. That’s another reason why some money is moving out.
Final Thoughts from the Market
This shift is not just about India doing badly—it’s more about the US offering slightly better short-term returns right now. Also, when global markets are full of fear, many big investors prefer putting money into what they see as “safe assets,” like US government bonds.
So, even though India looks strong, foreign investors are just playing it safe and chasing better interest in the US for now. How long this trend continues will depend on interest rates, inflation, and confidence in global recovery.
