Indian bonds craze is increasing again among foreign investors; another cut in repo rate expected

Foreign investors, who are hoping for the repo rate to be lowered again in August, are once again attracted to Indian government bonds. Over the past month, foreign investors have purchased Indian bonds worth Rs 129 billion. Earlier, more than Rs 330 billion were sold during the first two and a half months of the current financial year 2025-26.

Manish Bhargava, CEO of Singapore-based Straits Investment Management, said, RBI adopted a neutral stance with the repo rate cut in June. Because of this, foreign investors decided not to invest for a long period. However, due to the sharp decline in retail inflation in June, investors are now expecting another rate cut. Bhargava mentioned that if inflation stays low and growth concerns persist, a 0.25 percent reduction in the repo rate could happen in August. 

Giulia Pellegrini, head portfolio manager of emerging market debt at AllianzGI in London, said India's overall economic fundamentals remain strong. This keeps the country attractive to investors. Due to recent disappointing high-frequency data and the potential slowdown in economic growth, more support from the RBI is expected moving forward.

Jean Charles Sambor, head of emerging markets debt at TT International Asset Management in London, said India's domestic debt market remains very attractive in terms of both foreign exchange and rates. Bond returns may decline this year and next.

Investors believe that the increasing gap between interest rates in India and the U.S. will boost the appeal of Indian debt. "Interest rate cuts by the Federal Reserve could act as a positive catalyst for Indian bonds, as they have supported local currency debt markets. However, the yield on Indian bonds at the same policy rate levels is lower than before, making them relatively less attractive," said Nigel Foo, head of Asian fixed income at Singapore-based First Sentier Investors.