Foreign portfolio investors (FPIs) withdrew ₹17,417 crore from Indian government securities under the Fully Accessible Route (FAR) during September and October 2026, reversing the strong buying trend recorded earlier in the year. According to National Securities Depository Ltd (NSDL) data, overseas investors withdrew ₹10,431 crore in September and another ₹6,986 crore in October as concerns about global interest rates, currency movements and India’s delayed inclusion in a major global bond index affected investor sentiment.
The withdrawals followed substantial foreign investment in Indian government bonds during the first half of 2026, particularly in June, when FPIs invested ₹21,652 crore in FAR securities. Expectations that Indian government bonds would enter the Bloomberg Global Aggregate Index had encouraged overseas investors to increase their exposure. However, Bloomberg deferred its inclusion decision, while higher US Treasury yields, rising crude oil prices and rupee depreciation made Indian debt less attractive to some international investors.
FPIs Withdraw ₹17,417 Crore From FAR Bonds
Foreign investors turned net sellers of Indian government securities under the Fully Accessible Route during September and October.
The withdrawals represented a reversal from the strong buying interest seen earlier in 2026, when regulatory changes and expectations of global bond index inclusion supported foreign investment.
According to NSDL data, FPIs withdrew ₹10,431 crore in September and ₹6,986 crore in October.
Monthly FPI Investment in FAR Government Securities
| Month | FPI Investment |
|---|---|
| June 2026 | +₹21,652 crore |
| July 2026 | +₹3,033 crore |
| August 2026 | +₹264 crore |
| September 2026 | -₹10,431 crore |
| October 2026 | -₹6,986 crore |
| September-October total | -₹17,417 crore |
The figures show how quickly investor sentiment changed after the strong June inflows.
Although FPIs continued buying Indian government securities in July and August, the amount of fresh investment declined sharply before turning negative in September.
Despite the withdrawals, cumulative net investment in FAR securities remained positive at ₹22,350 crore for calendar year 2026 up to November 3, according to NSDL data.
This indicates that the strong buying earlier in the year continued to support overall foreign investment levels despite the recent selling.
What Is the Fully Accessible Route (FAR)?
The Fully Accessible Route is a framework introduced by the Reserve Bank of India (RBI) in 2020 to allow eligible non-resident investors to invest in specified Indian government securities without the usual investment limits applicable under other foreign investment routes.
Under FAR, eligible foreign portfolio investors can purchase designated government bonds without being subject to the conventional foreign investment limits that apply to securities outside the route.
The objective is to attract long-term international capital into India’s government bond market and improve access for overseas institutional investors.
These investors include foreign asset managers, pension funds, insurance companies and other international financial institutions.
FAR is particularly important because government securities help finance the government’s borrowing requirements. Greater participation from overseas investors can broaden the investor base and potentially improve demand for government bonds.
How FAR Investment Works
- Eligible securities: The RBI designates specific government bonds that foreign investors can purchase through FAR.
- Foreign investment: Eligible overseas investors buy these securities through authorised channels.
- Government borrowing: Demand for government bonds helps support the market for financing government expenditure.
- Secondary-market trading: Investors can buy and sell eligible securities, providing liquidity to the government bond market.
FAR is therefore an important part of India’s efforts to integrate its government debt market with international financial markets.
Delayed Bloomberg Bond Index Inclusion Disappoints Investors
One of the major reasons behind the withdrawal was the postponement of India’s potential inclusion in the Bloomberg Global Aggregate Index.
The index tracks investment-grade government and corporate bonds across international markets. It is followed by global asset managers and institutional investors that use it as a benchmark for allocating capital.
Inclusion in such an index can attract substantial foreign investment because passive funds and benchmark-oriented investors may need to purchase securities from the newly included market.
India’s government bonds had been attracting attention from international investors ahead of the expected decision.
However, Bloomberg Index Services deferred its decision on including Indian government securities, stating that the recent market reforms needed more time to become established in day-to-day market practices.
The decision weakened expectations of additional index-driven investment.
Gaura Sengupta, chief economist at IDFC First Bank, told Moneycontrol that the selling of FAR securities was linked to India’s exclusion from the latest index inclusion decision.
The expectation of inclusion had encouraged foreign investors to increase their holdings earlier in the year. Once the decision was deferred, some investors reversed those positions.
Why Index Inclusion Matters
| Factor | Potential Impact |
|---|---|
| Passive fund investments | Funds tracking the index may need to purchase Indian bonds |
| Institutional demand | More global investors could enter the Indian government bond market |
| Market liquidity | A wider investor base could improve trading activity |
| Borrowing costs | Stronger demand could support bond prices and potentially reduce yields |
| Foreign capital | Index inclusion could create additional long-term investment flows |
However, index inclusion does not guarantee uninterrupted foreign investment. Global interest rates, currency movements and investor risk appetite continue to influence capital flows.
Higher US Treasury Yields Make Indian Bonds Less Attractive
Another important factor behind the withdrawals was the increase in US Treasury yields.
US government securities are considered among the most important global investment benchmarks. When their yields rise, international investors may find dollar-denominated assets more attractive compared with emerging-market bonds.
Indian government securities offer relatively higher interest rates, but foreign investors must also consider currency risk.
For example, an overseas investor purchasing an Indian government bond earns returns in rupees. If the rupee depreciates against the US dollar during the investment period, the dollar value of those returns can decline.
This can reduce or even eliminate the additional yield advantage offered by Indian bonds.
Higher US Treasury yields therefore increase competition for international capital and can make emerging-market debt less attractive.
For foreign investors comparing government securities across countries, the decision depends on several factors:
- Interest-rate differentials between India and developed markets.
- Expected movement in the rupee against the dollar.
- Inflation and economic growth expectations.
- Global geopolitical developments.
- The availability of other investment opportunities.
The combination of higher US yields and currency uncertainty contributed to the selling pressure in Indian government securities.
Rising Crude Oil Prices Add Pressure on the Rupee
Higher crude oil prices also affected investor sentiment towards Indian debt.
India imports a substantial portion of its crude oil requirements. When international oil prices increase, the country’s import bill can rise, creating additional demand for foreign currency.
A higher import bill can put pressure on the rupee and increase concerns about imported inflation.
Currency depreciation is particularly important for foreign bond investors because it affects returns when investments are converted back into their home currencies.
If the rupee weakens significantly, the currency loss can offset the interest income earned from Indian government bonds.
This makes overseas investors more cautious about increasing exposure to Indian debt during periods of elevated oil prices and foreign exchange volatility.
Government and RBI Had Introduced Measures to Attract Foreign Investors
The recent withdrawals came after the government and the RBI introduced several measures in June 2026 to make Indian government securities more attractive to international investors.
The changes were designed to reduce regulatory restrictions and improve the accessibility of India’s bond market.
One major change involved exempting eligible foreign investors from income tax on interest income and capital gains from government securities, subject to the applicable provisions.
The RBI also expanded the list of securities available under FAR.
The additional eligible securities included new government bond issuances with maturities of 15, 30 and 40 years, along with sovereign green bonds across specified maturities.
The RBI also removed certain investment restrictions under the General Route, including short-term, security-wise and concentration limits.
Key Measures Introduced in June 2026
| Regulatory Change | Objective |
|---|---|
| Tax exemption on eligible G-Sec interest and capital gains | Improve post-tax returns for foreign investors |
| Addition of 15-year, 30-year and 40-year bonds under FAR | Expand investment opportunities |
| Inclusion of sovereign green bonds | Attract investors focused on sustainable finance |
| Removal of selected investment restrictions under the General Route | Simplify foreign investment |
| Consolidation of investment limit categories | Make the regulatory framework easier to navigate |
These measures were intended to attract stable, long-term foreign capital, including investments from pension funds, insurance companies and sovereign wealth funds.
The initial response was positive, particularly in June, when FAR investment increased sharply.
However, the subsequent withdrawals show that regulatory improvements alone cannot guarantee sustained foreign demand when global financial conditions become less favourable.
How FPI Selling Affects India’s Government Bond Market
Foreign portfolio investment plays an important role in determining demand and liquidity in India’s government securities market.
When foreign investors purchase government bonds, demand increases. All else being equal, higher demand can push bond prices upwards and yields downwards.
When investors sell bonds, the additional supply can put downward pressure on prices and push yields higher.
Government bond yields are important because they influence borrowing costs across the economy.
For example, yields on government securities act as benchmarks for pricing corporate bonds, bank lending products and other financial instruments.
Sustained foreign selling could therefore create additional pressure on government borrowing costs, particularly if domestic investors do not absorb the securities being sold.
However, the overall impact depends on demand from domestic banks, insurance companies, mutual funds and other institutional investors.
India’s government bond market is not dependent exclusively on foreign investors, and domestic institutions remain important buyers.
The Bigger Picture
The withdrawal of ₹17,417 crore from FAR government securities highlights the influence of global financial conditions on India’s efforts to attract international debt investment.
The government and RBI have introduced measures to improve access to Indian bonds, including tax changes and an expansion of eligible securities. These steps initially encouraged foreign investors to increase their exposure.
However, the delayed Bloomberg index inclusion decision, higher US Treasury yields, rising crude oil prices and rupee weakness changed the investment environment.
The development also shows that India’s integration into global bond markets will depend on more than regulatory reforms. Consistent market infrastructure, currency stability, attractive risk-adjusted returns and predictable investment rules will remain important in attracting long-term foreign capital.
Looking Ahead
Investors will watch for any fresh decision regarding India’s inclusion in the Bloomberg Global Aggregate Index, as well as changes in US Treasury yields, crude oil prices and the rupee’s exchange rate. A more favourable global interest-rate environment and greater certainty over index inclusion could improve demand for Indian government securities. However, foreign investment flows may remain sensitive to global risk appetite.
For the Indian government bond market, the priority will be to maintain investor confidence while broadening the domestic and international investor base. The recent withdrawals do not erase the positive investment flows recorded earlier in 2026, but they demonstrate how quickly foreign portfolio investors can change their positions when global conditions and expected returns shift.
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SEO Title: FPIs Withdraw ₹17,417 Crore From FAR Government Bonds in September-October
Meta Description: Foreign investors withdrew ₹17,417 crore from India’s FAR government securities in September and October amid delayed Bloomberg index inclusion, higher US yields and rupee weakness.
URL Slug: fpi-withdrawals-far-government-securities-september-october-2026
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Related Keywords: FPI outflows India, FAR bonds, Indian government securities, Bloomberg Global Aggregate Index, foreign portfolio investors, RBI bond market reforms, US Treasury yields, rupee depreciation
Alternative Headlines:
- Foreign Investors Pull ₹17,417 Crore From Indian Government Bonds in Two Months
- FPIs Reverse Bond Buying Trend as ₹17,417 Crore Leaves FAR Securities
- Delayed Bloomberg Index Inclusion and Higher US Yields Trigger FAR Bond Outflows
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