Despite recent tax reforms and record foreign inflows, SBI Funds Management signals limited appetite from overseas investors amidst global yield pressures, currency concerns, and delayed index inclusion, casting doubt on sustained foreign participation in Indian sovereign debt.
Foreign investment in Indian government bonds is expected to remain subdued in the near term, even after New Delhi moved to remove taxes on overseas purchases of sovereign debt, as SBI Funds Management says global yields, domestic rate expectations and the rupee outlook are still discouraging bigger allocations.
In its August 2026 market outlook, the fund house said the delayed inclusion of Indian bonds in a major global index is another reason foreign portfolio investors are likely to stay cautious. SBI Funds said any inflows that do emerge may be tactical rather than broad-based, with currency moves playing a bigger role than policy changes alone.
The assessment comes after a strong run for foreign buying earlier this year. Reuters reported in June that overseas investors poured a record ₹39,640 crore, or about $4.2 billion, into Indian government securities through the Fully Accessible Route, helped by the removal of capital gains tax on eligible sovereign debt and the extension of access to longer-dated bonds. That followed a five-month high in August 2025, when foreign inflows into government bonds rose to ₹9,690 crore on the back of attractive yield spreads, fiscal consolidation and hopes of index inclusion, according to the Financial Express.
SBI Funds also expects the Reserve Bank of India to hold rates steady for some time, citing the central bank’s inflation guidance and its focus on core inflation. The report said that could delay any normalisation in policy. It added that elevated bond yields in developed markets, supported by lingering inflation and weak fiscal positions, may continue to draw capital away from Indian debt even as the government tries to widen foreign access. SBI Funds Management, backed by State Bank of India and Amundi, manages about ₹12.5 trillion in assets and is in the middle of a sizeable public listing, underscoring the scale of the firm behind the outlook.
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