Experts, however, caution that the upgrade will not immediately channelise funds into the debt market.
| Photo Credit:
REUTERS
The Government Securities (G-Secs) market rallied on Thursday on expectations of foreign portfolio investor (FPI) flows into the debt market, after S&P Global upgraded India’s sovereign rating from ‘BBB-’ to ‘BBB’, with a stable outlook.
The 10-year benchmark G-Sec (6.33 per cent GS 2035) rallied about 50 paise, with its yield dipping eight basis points (bps) to close at 6.40 per cent from the previous close of 6.48 per cent.
In its rationale for the rating upgrade, S&P Global noted that India is prioritising fiscal consolidation, demonstrating the government’s political commitment to deliver sustainable public finances, while maintaining its strong infrastructure drive.
Further, robust economic expansion is having a constructive effect on India’s credit metrics, and the global rating agency expects sound economic fundamentals to underpin growth momentum over the next two to three years. In addition to this, monetary policy settings have become increasingly conducive to managing inflationary expectations.
Slow and steady…
Yield of the 10-year benchmark G-Sec had breached the 6.5 per cent mark on Wednesday for the first time after it was issued in May 2025. This came amid a dip in net direct tax collection in the fiscal so far, triggering speculation in the bond market that the government may borrow more in FY26 to make up for possible shortfall in revenue collection.
Marzban Irani, Chief Investment Officer – Fixed Income, LIF Mutual Fund, observed that yield of the benchmark paper could gradually move towards the 6.25 per cent level once volatility in the currency moderates and foreign investors start coming in due to the sovereign rating upgrade.
Further, the upgrade could also support inclusion of India’s sovereign debt in other global indices, going ahead.
“While the sovereign rating upgrade is a positive development, foreign investors will not immediately channelise funds into our debt market. Foreign fund inflows will happen over over a period of time,” Irani said.
The LIC MF Fixed Income CIO expects a repo rate cut in the October bi-monthly monetary policy review amid low retail inflation as the growth numbers that will come in this month end may reflect some slowdown.
Madhavi Arora, Chief Economist, Emkay Global Financial Services, said, “Despite possibly better FPI debt flows, demand from domestic agents stays unconvincing, especially at the longer end.”
“While we believe the rate easing cycle may still have further room to run, markets are not fully pricing the same, thus further aiding G-Sec curve steepness. The 10-year G-Sec yield may range at 6.35-6.50 per cent,” she added.
Published on August 14, 2025
