Reserve Bank of India (RBI) Deputy Governor Poonam Gupta has said that India's bond market has performed well in recent years — both relative to its own historical record and compared with most other countries — even as US bond yields climbed to their highest level in 22 years. Her remarks appeared in the RBI's September 2026 Bulletin.

Why India's Bond Market Has Held Strong

According to Gupta, the relative resilience of India's bond market stems from three reinforcing factors: the government's demonstrated fiscal commitment, projections of sustained high economic growth that would further improve fiscal outcomes, and the credibility of monetary policy backed by declining structural pressures on inflation.

The strength has drawn international notice. The Economist remarked that 'India's experience shows the importance of cleaning up public finances and letting central bankers fight inflation in peace,' a line Gupta cited in the bulletin as external validation of the country's macroeconomic management.

Equities Lagging — But Not For Long, Says Gupta

Gupta acknowledged that equity markets have not mirrored the same optimism seen in bonds. She attributed this divergence, at least in part, to 'a relatively more promising AI-led story in certain other economies.' While Indian equities had an 'exceptional run' roughly between June 2022 and September 2024, she noted that some other markets have since outpaced them.

However, Gupta struck an optimistic note on the medium-term outlook. 'Going by past experiences, it is only a matter of time before Indian equities look relatively more attractive again,' she said, arguing that the promise of India's underlying real economy would 'eventually reassert itself.'

Balance of Payments and the Rupee

Gupta also addressed questions about whether India's balance of payments (BOP) and exchange rate accurately reflect the economy's underlying strengths. She noted that India has traditionally run a small current account deficit (CAD) and a larger capital account surplus, resulting in a net positive BOP position.

Critically, India's CAD as a percentage of GDP has declined over time, adding resilience to the BOP. 'The CAD levels have remained far below the levels generally considered to be prudent for emerging market economies,' Gupta said. She highlighted net services exports and remittances as 'great structural strengths' — large and resilient enough, together, to absorb the merchandise trade deficit and keep the CAD contained at below 1% of GDP.

What This Signals for Markets

This comes amid a globally volatile rate environment, where elevated US yields have pressured currencies and sovereign bonds across emerging markets. India's ability to maintain orderly bond markets in that context represents a meaningful divergence. If Gupta's assessment proves correct, a reallocation toward Indian equities — as the AI-driven premium in other markets normalises — could represent the next significant capital market story for the country.