Overseas investors are starting to whittle their debt portfolios and scurry back into the safety of US treasuries, gold and the greenback.

Blame it all on the surge in geopolitical tensions, the persistently high rate of inflation in the US and the US Fed’s increasing reluctance to cut interest rates in a hurry.

Overseas investors had ploughed Rs 19,837 crore into domestic debt in January and increased it to Rs 22,419 crore in the following month. But data from the NSDL shows that they have suddenly lost their appetite for Indian securities. Their net investment in debt declined to Rs 13,602 crore in March. In April, they have turned net sellers and have sold bonds worth Rs 6049 crore.

Analysts said the trend has accentuated after the outbreak of the Israel-Iran conflict that saw Tehran launching an attack on April 13.

The US-based investors have been spooked by the high CPI inflation in the US which rose to a strong-than-expected 3.5 per cent in March. The surge in inflation and the strong employment numbers have indicated that the haul back to the Fed’s 2 per cent inflation target could take longer than expected.

FPIs were net sellers to the tune of Rs 3,653.70 crore on April 4, Rs 848.87 crore on April 5, Rs 1,626 crore on April 8, and Rs 1,766 crore on April 15.

Market circles added that this trend is not likely to stay for long since India’s inclusion into the global bond indices could see more inflows.

Last September, JP Morgan had announced the inclusion of India government bonds into its Government Bond Index-Emerging Markets (GBI-EM) beginning June 2024.

“We also have the general elections which is underway. If the current regime returns with a solid majority, FPI investments could rise both in equities and debt. Meanwhile, a relieving factor is that both Israel and Iran have indicated that they do not intend to escalate their conflict into a full-fledged war,” said an analyst from a foreign brokerage.