FPIs Pull Out $2.27B From Indian Debt in April 2025

April 24, 2025: Foreign Portfolio Investors (FPIs) have turned net sellers of the Indian debt market, pulling out a record $2.27 billion up to April 2025. This is the largest net withdrawal in one month since May 2020, reflecting a sudden global investor sentiment change.

This about-face follows four consecutive months of FPI inflows in Indian debt and, importantly, the first month of sell-offs since November 2024.

What’s Triggering the Outflows?
Market analysts attribute the FPI withdrawal is being motivated by a coincidence of global economic pressures and dwindling yield benefits between Indian and U.S. debt instruments.

India’s 10-year government bond yield has decreased from 6.6% to approximately 6.33% in April, while U.S. 10-year yields have risen from 3.99% to 4.35%. This has narrowed the yield spread to nearly 200 basis points, its lowest since 2004. As U.S. bonds now offer superior risk-adjusted returns, many FPIs are reallocating capital to safer Western markets.

Rising U.S. yields, persistent inflation, and global market volatility are steering investors towards holding more U.S. debt, which now seems a more attractive option.

Trump Tariffs and Global Volatility
Recent geopolitical events, especially two-way tariffs unveiled by President Donald Trump, have also unsettled markets further. Such trade tensions along with concerns about inflation have weighed on growth expectations everywhere and spurred more defensive FPI conduct across emerging economies such as India.

However, despite the selloff, India’s domestic debt fundamentals remain robust. Soothing inflation, the possibility of RBI rate cuts, and supportive liquidity conditions continue to offer a solid foundation for rupee-denominated bonds.

With the terminal repo rate observed in the range of 5.25% to 5.50%, and 10-year bond yields trading at a spread of nearly 100 basis points, FPIs appear to have capitalised on an appreciating rupee.

Historical Perspective on FPI Activity
April’s $2.27B (₹18,910 crore approx) withdrawal adds to a year marked by volatility in FPI investments. Earlier in 2025:
– In January, an vertical return of 78,027 crore was recorded.
– Another ₹34,574 crore was taken off in February.
– March experienced a more mixed landscape, in which FPIs became net buyers at the end of the month, partially offset the first withdrawal.

Looking Ahead
Although global factors have short-term damped foreign demand for Indian debt, structural support in the domestic economy can potentially stabilize the trend in the long run. As India’s growth trajectory remains unscathed and macro fundamentals intact, the medium-term outlook for India’s debt markets remains cautiously optimistic.