New Delhi: India’s bond market is witnessing a renewed surge in foreign investor interest, triggered by growing speculation that the Reserve Bank of India (RBI) may resume its rate-cutting cycle in the coming months. The resurgence in optimism has already translated into significant portfolio inflows, signaling a shift in global investor sentiment towards one of Asia’s most dynamic economies.
Over the past month alone, overseas funds have poured nearly ₹12,900 crore (approximately $1.5 billion) into Indian government and corporate bonds. This inflow comes as market participants increasingly anticipate that the RBI could announce another repo rate reduction as early as August. The central bank had already surprised markets in June with a 50 basis-point cut, shifting its stance from "withdrawal of accommodation" to a more neutral outlook. Since then, softening inflation and sluggish economic indicators have reinforced the case for further easing.
According to Kazuo Ishikawa, Chief Fixed-Income Strategist at Straits Investment Management, "India's bond yields remain attractive when adjusted for inflation, especially as global central banks begin easing. RBI has the room and reason to move further." The Indian 10-year bond currently yields around 6.3%, a sizable premium over U.S. Treasury yields, which hover near 4.35%.
The renewed enthusiasm is also backed by structural changes. India’s gradual inclusion in global bond indices has increased the visibility and accessibility of its sovereign debt. Furthermore, regulatory reforms that simplify foreign investment in Indian corporate debt are proving beneficial, drawing new classes of investors seeking long-term exposure to India’s growth story.
However, market analysts warn of potential limitations. Bond yields are already near multi-year lows, which could cap further price gains and temper investor appetite. Additionally, global volatility and any unexpected tightening from the U.S. Federal Reserve could alter the trajectory of foreign flows.
Despite these caveats, India remains one of the most promising destinations for fixed-income investors in emerging markets. A resilient rupee, controlled inflation, and consistent macroeconomic reforms have bolstered the country's appeal. In fact, BofA Securities recently identified India’s bond market and currency as among the top three likely beneficiaries of foreign capital flows in Asia for the second half of 2025.
As the RBI gears up for its next policy meeting, all eyes will be on inflation data and economic growth forecasts. If the central bank delivers another rate cut, it could mark a pivotal moment for India’s fixed-income landscape potentially ushering in a fresh cycle of capital inflows that reinforce investor confidence in the country’s long-term fundamentals.