Global bond yields are at multi-decade highs; the sectors you own decide how much of the pain shows up on your screen.
If your broking app looks pretty bloody awful these weeks, don’t blame what’s happened in India. The bond markets moving sharply thousands of kilmetres away in Washington and Tokyo are more relevant to your portfolio than anything that has happened here.
The most important number in global finance right now is the yield on the 10 year US Treasury bond. It is at a 19-year high of 5.27% and testing the psychological barrier of 6% that could unleash a lot of capital out of emerging markets.
The Bond Factor Behind the Global Repricing
| Sovereign bond | Yield (%) | Change on day |
|---|---|---|
| US 2-year | 4.937 | +1.50% |
| US 10-year | 5.267 | +1.54% |
| US 30-year | 5.566 | +1.16% |
| Japan 10-year | 3.086 | +0.36% |
| Japan 30-year | 4.183 | +0.77% |
| Japan 40-year | 4.250 | +1.31% |
Source: Latest global bond yield readings, 28 September 2026
The long-term bond yields of Japanese Government Bonds have increased for the past nearly three decades and have remained near zero. However, as mentioned earlier, recently they have increased and are currently above 4% at the long end.
For the first time in almost three decades, therefore, Japanese long-term bonds now yield more than 4% and hence can provide a high return at zero currency risk to Japanese pension funds and life insurance companies. Hence, there is a sharp decline in the case for investing in Indian equities by Japanese pension funds and life insurance companies.
What’s at stake?
Foreign portfolio investors compare returns of a “risk free” US Treasury with the returns that can be earned from a riskier Indian stock, after adjusting for rupee currency risk.
While the US Treasury yielded 2% (the returns from long term US government bonds), Indian stocks looked a great deal. Even today, 5.27% on the long-term US Treasury versus 5-7% returns on stocks would suggest great returns, but the perceived risk as well as rupee currency risk on account of the higher returns have crashed the margin for foreigners to buy into Indian stocks.
By our calculations, Foreign Portfolio Investors have pulled out around ₹2.45 trillion from the Indian Equity market so far in 2026 and this is higher than the total FPI outflows of approximately ₹1.66 trillion in 2025 from the Indian Equity market.
The bulk of these selling have been from Large Cap Financials and IT stocks which also happen to be two of the most sold sectors from a FPI perspective.
How the Indian Indices Are Absorbing the Blow
| Index | Close (28 Sep 2026) | Approx. YTD change |
|---|---|---|
| BSE Sensex | 72,969 | ~ -14% |
| Nifty 50 | Below 22,800 | ~ -13% |
| Nifty Bank | 55,580 | ~ flat |
Source: BSE, NSE; approximate calendar 2026 YTD moves
India’s Nifty has fallen for seven weeks in a row. On Monday, 28 September, India’s stock market saw investors lose ₹8.88 lakh crore in just one day of trading with over 2,700 stocks from the NSE’s traded lot declining on the day.
However, in contrast, the Nifty Bank index, which tracks the country’s banking stocks, has remained flat on the year, and even rose 0.26% on Monday, to 55,580.40.
In other words, all the selling by foreign investors in Indian stocks is being used by domestic investors to buy up banks and financial stocks, which makes sense because they are the safest and most liquid companies in the market.
The Sector Story
The largest divergences and downward moves have been in stock in the IT space (all four largest listed IT firms – TCS, Infosys, Tech Mahindra, Wipro) given a large percentage of trading in these names is from foreign portfolio investors and does not get to benefit from dollar earnings due to currency depreciation which affects stock price multiples.
Among large cap private sector banks, large institutional selling in ICICI Bank and HDFC Bank has been a notable feature over recent sessions.
On the flip side, within Indian sectors, capital goods, defence, healthcare stocks have held their ground as they have higher domestic ownership. Also, their earnings are correlated with India’s investment cycle and not with the global demand for their stocks. Accordingly, stocks such as BHEL, Hindustan Aeronautics, Dr Reddy’s, Crompton Greaves Corp have bucked the overall trend.
For a direct equity investor, the chart makes an even better reading. As the global rate stress gets translated into marginal selling by foreigners, it is the stocks that they hold most in their portfolios that get impacted the most.
On the other hand, stocks that are dominated by domestic ownership, and which have earnings that are correlated to the domestic investment cycle, would remain relatively unaffected. In fact, they may even offer a contrarian opportunity.
There is no need to panic. In past occurrences of foreign outflow due to external reasons, Indian stock markets have recovered sharply post a period or so when the global rate cycle reverse. People who sold in those periods of panic to enter late have underperformed those who held on or even added to their stocks.
Historically, the yield gap has inversely relied on the rate cycle within twelve to eighteen months. Hence, a decision to move out of stocks in search of higher yields on fixed income instruments would translate into the most expensive timing mistake in Indian personal finance over the long term.
Stocks must continue to be the preferred investment destination, provided quality stocks are held in a well diversified portfolio. However, the pain could last for some time if yields don’t stabilise from here on.
Reading the cues
The over 19 year low US 10 year bond yields of 5.27% are currently the largest factor driving the historically high FPI outflows from Indian equities.
Japan’s bond yields will also impact capital flows to emerging markets as ultra-low rates that lasted for decades for the key economy facilitate large amounts of carry-trade funded by Japanese banks and households.
Another parameter which one can track for reading the FPI inflows/ outflows into India is total dollar amount of FPI flows in India in 2026, which has already exceeded the amounts of FPI flows in India in 2025 and are mostly concentrated in large-cap IT stocks and private banks.
That is the single biggest signal from the market as to where the domestic investors are writing the cheques.
Historical data tells us that global rate spikes have to get reversed in a rate cycle and hence it is a good idea to hold onto quality stocks rather than sell them in a situation of rising yield gap.
