However, foreign investors still remain net buyers of debt this calendar year at $90.40 million.
Market participants attribute the flight of capital to the general risk aversion prevailing in global markets.
“FPIs have a tendency of moving towards safe haven in these times of volatility. Although the fundamentals of the country remains strong, times like these usually see a general flight to safety by foreign investors. This is the same situation with some of the other emerging markets as well,” a foreign banker said.
Even government securities, which are seen as lucrative instruments by foreign investors, have been witnessing a lukewarm response from FPIs.
Market players pointed out that a continuous rise in yield might be a worrying factor even as foreign investors tend to keep a close watch on their capital appreciation.
At Monday’s auction, the cut-off bid—the lowest price paid by FPIs to acquire limits on G-secs— came down to 2.2 basis points from 30 basis points at the last auction in January. Moreover, the quantum of subscription for the Rs 3,011 crore of gilts on offer was Rs 3448 crore; past auctions have seen far more enthusiastic responses.
“Before the next monetary policy review, there would be one more debt auction. In this rising yield environment, FPIs might be looking for a reasonable entry point,” a bond market expert said.
Even the FPI investment in corporate bond seems to be waning off gradually. Currently, FPIs have utilised just 71.20% of their investment limit in Indian corporate bonds—currently at $51 billion— as on February 15. The utilisation stood at 73.29% as on January 01 this year.
However, the Indian debt is still holding up compared to the equity market which has seen an outflow of $2.3 billion this calendar year. Over the last ten consecutive sessions, FPIs have sold $674 million of Indian equities.
The Rupee also depreciated to 68.38 on Tuesday with the currency having fallen by 3.8% since the beginning of the year. The 7.59% 2026 ten-year benchmark yield hit its highest level at 7.78% since it was introduced.