The 10-year G-Sec yield is likely to trade at 6.70-6.90% until a rate hike from the MPC appears imminent. While FPIs withdrew a record $15.1 billion from Indian equities in Q1 FY2027, they brought in $5.0 billion into debt during the quarter, aided by the RBI’s measures to attract foreign capital in the debt segment. Net FDI inflow improved to $6.9 billion in FY2026 from $1.0 billion in FY2025 and were nearly as high at $6.5 billion in Q1 FY2027. LRS outflow eased to $29.0 billion in FY2026 from $29.6 billion in FY2025. Subsequently they stood at $4.7 billion in Q1 FY2027 (till May 2026).

• Gross ECB approvals moderated by ~30% to $42.9 billion in FY2026 from the record $61.2 billion in FY2025; ICRA estimates the same at $50-55 billion for FY2027.
• India’s GDP growth is expected to decelerate to 6.7% in FY2027 from 7.7% in FY2026, amid the fallout of the West Asia conflict as well as the rising likelihood of deficient SW Monsoon. CPI inflation hardened to 3.9% in Q1 FY2027 from 3.1% in Q4 FY2026, reflecting the passthrough of the surge in energy prices. 
• The MPC is likely to vote for status quo in the August 2026 policy meeting; a back-ended rate hike(s) is likely in CY2026 once there is greater clarity on monsoons. Systemic liquidity surplus rose to Rs. 2.1 trillion in Q1 FY2027 from Rs. 1.6 trillion in Q4 FY2026; measures to attract foreign capital may support liquidity conditions in the near term.

Source: NSDL, CDSL, ICRA Research