Rising yields amid Middle East crisis trigger Rs 17,689 cr FPI outflow from FAR G-Sec

Foreign portfolio investors have pulled out Rs 17,689 crore of their bets from Fully Accessible Route (FAR) government securities since the beginning of the conflict in Middle East, reflecting heightened risk aversion among the global investors and growing concerns over inflationary pressures linked to surging crude oil prices.

According to data from the Clearing Corporation of India (CCIL), FPI investment in FAR government securities declined to Rs 3,13,318.661 crore as on April 1, from Rs 3,31,007.648 crore as on February 27, indicating a steady unwinding of positions by overseas investors in recent weeks.

Market participants said the outflows coincided with a sharp rise in domestic bond yields, particularly after geopolitical tensions in the Middle East pushed global crude oil prices higher, raising inflation risks and tightening financial conditions across emerging markets.

During the same period, the yield on Indian government bonds, especially the 10-year benchmark bond, rose by about 0.33 per cent. On March 27, the yield on the benchmark paper settled above the 7 per cent mark, the highest-level seen in over 20 months, reflecting sustained selling pressure in the bond market across investor base.

Bond market experts noted that elevated yields reduce the attractiveness of existing bond holdings, leading foreign investors to trim exposure, especially in interest rate-sensitive segments such as government securities under the FAR route, which are fully accessible to overseas investors without investment caps.

A report by HDFC Bank indicated that the 10-year government bond yield is likely to trade in the range of 6.90-7.20 per cent in the near term. PTI