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Investment by the foreign portfolio investors into government-backed securities that are part of benchmark global bond indices are still lower than pre-tariff levels, a sign of continued caution among investors, even as inflows have started to return, though at a slower pace.

As per Clearing Corporation of India’s (CCIL) data, foreign investors’ investment in government bonds stood at Rs 2.95 lakh crore as on May 2, compared to Rs 3.06 lakh crore as on April 2, just before the imposition of Trump’s tariffs. The investment is moving at a slower pace despite the 90-day pause on tariffs by the Trump administration, and amid on-going talks between India and US over a trade agreement.

The April selloff by Foreign Portfolio Investors (FPIs) in Indian debt market came after four consecutive months of inflows, which saw the largest monthly outflow since May 2020 and the first since November 2024.

US President Trump had unveiled global reciprocal tariffs, and said that America would charge a 34% tax on imports from China, a 20% tax on imports from the European Union, 25% on South Korea, 26% on India, 24% on Japan and 32% on Taiwan. Subsequently, these tariffs were put on hold on April 9, barring China.

The uncertainty had initially led to a selloff in global and domestic equities, as well as in the bond market, with the foreign investors pulling out funds, but they turned net buyers in equities after a nine-session buying in the latter half of April.

The flow picture had turned positive after the 90-day tariff pause, and since then, investment has started coming in but at a slower pace.

On April 29, the Commerce Ministry said New Delhi and Washington are exploring mutual wins, as both sides inch closer to finalising a multi-sector BTA by autumn of 2025, with in-person, sector-level engagements planned from end of May.

On the same day, US President Trump said tariff talks with India were ‘going great’ and suggested the two nations could soon reach a trade deal.

Yield on government securities, especially 10-year benchmark bond eased around 10 basis points (bps) following a rate cut by the Reserve Bank of India and steady demand from domestic investors such as EPFO, pension funds, and insurance companies.

RBI’s rate cut in April was second in a row, with a benign inflation outlook and forecast of moderate growth. The central bank had also shifted its stance from ‘neutral’ to ‘accommodative’.

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