FPIs Pull $2.27 Billion from Indian Debt in April, Marking Largest Outflow Since May 2020

Ira Singh
Khabar Khabaron Ki,24 April’25

Foreign Portfolio Investors (FPIs) have withdrawn over $2.27 billion from Indian debt markets in April 2025, marking the largest monthly outflow since May 2020 and the first net outflow since November 2024 according to official data, amid rising global market volatility triggered by the ongoing tariff war.

This shift follows four consecutive months of inflows, with analysts attributing the reversal to a narrowing yield spread between Indian and U.S. bonds. India’s 10-year government bond yield has declined to approximately 6.33% as of April 23, while the U.S. 10-year Treasury yield has risen to about 4.36%, compressing the yield differential to around 200 basis points—the tightest since September 2004 .

According to information available from depository data, this sharp reversal is being attributed to a combination of global economic uncertainty and shifting interest rate dynamics. Analysts point out that a key driver of this exodus has been the narrowing yield spread between Indian and U.S. government bonds.The reduced yield advantage has prompted FPIs to reallocate funds toward U.S. debt, which currently offers more attractive returns amid persistent inflation concerns and market volatility.

Expressing opinion on the development, Soumyajit Niyogi, Director at India Ratings & Research, said that the shrinking yield advantage has led global investors to rebalance their portfolios in favor of U.S. treasuries, which currently offer relatively higher returns amid a backdrop of firming inflation and rising market volatility.

According to analysts, the recent surge in U.S. bond yields is being driven by persistent inflation concerns, renewed fears of trade-related disruptions, and increased geopolitical tension, all of which have reduced the likelihood of imminent rate cuts by the Federal Reserve.

Despite the global outflow trend, domestic factors remain broadly supportive of Indian rupee-denominated bonds. According to market participants, easing inflation, healthy liquidity levels, ongoing open market operations, and expectations of further policy easing by the Reserve Bank of India (RBI) continue to provide a favorable backdrop for the local debt market.

“The ten-year bond is currently trading at a spread of around 100 basis points over the terminal repo rate, which is expected to remain within the 5.25–5.50% range,” Gopal Tripathi, Head of Treasury and Capital Markets at Jana Small Finance Bank,reportedly stated. “This suggests that FPIs may have used the current scenario as an opportunity to lock in gains—particularly with the rupee appreciating nearly 3% from recent lows.”

Meanwhile, the broader risk-off sentiment has also impacted equity flows. According to recent trends, FPIs turned net sellers in sectors such as Information Technology and Financials during the first half of April, reflecting a cautious stance amid global uncertainties.