Bond Yields Fall Amid Speculation of Tax Repeal for Foreign Government Securities Investments
Government's Plan to Eliminate Capital Gains Tax Sends 10-Year Bond Yields Lower
Benchmark 10-year bond yields slipped at the open on June 4, following reports that the government may eliminate capital gains taxes for foreign investors trading sovereign debt. The 10-year bond yield was trading at 7.0143 percent after closing the previous session at 7.0248 percent.
The government's move to make debt markets more attractive to overseas investors could bring fresh foreign capital into the country. Currently, a long-term capital gains tax of 12.5 percent is levied on government debt investments held for more than 12 months. However, the reports of a potential elimination of capital gains tax have yet to be independently verified by Moneycontrol.
Attention now shifts to the RBI's monetary policy committee (MPC) review, which concludes on June 5. The MPC is expected to hold the key repo rate at 5.25 percent, although a growing minority among market participants expect a 25-basis-point (bps) hike, as per a Moneycontrol poll.
The central bank is likely to change inflation and growth forecasts for FY27, given the broader uncertainty arising from the West Asia conflict. This uncertainty is expected to impact the country's economic prospects, leading to a potential change in the RBI's monetary policy stance.
The rupee opened marginally higher at 95.71 against the dollar after ending the previous session at 95.70. However, foreign investors continue to pull money from Indian markets, adding to rupee pressure. The FPIs net sold shares worth Rs 5,617 crore on June 3, while domestic institutional investors (DIIs) net bought equities worth Rs 5,741 crore. In the previous three sessions, FPIs have pulled out around Rs 28,700 crore, compared to Rs 32,963 crore in all of May.
| Date | FPIs Net Sold | DIIs Net Bought |
|---|---|---|
| June 3 | Rs 5,617 crore | Rs 5,741 crore |
| Previous three sessions | Rs 28,700 crore | - |
| All of May | - | - |
Note: FPIs = Foreign Portfolio Investors, DIIs = Domestic Institutional Investors
Read also: Sugar Stocks Post Q4 2026 Earnings: A Comparative Analysis
Investor Takeaway
Investors may see a potential increase in foreign capital inflows if the government repeals capital gains taxes for foreign investors trading sovereign debt.
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