India second best FDI destination for risk-adjusted returns, says Care Ratings

India stands second only to Indonesia in global rankings when it comes to average risk-adjusted returns on foreign direct investment (FDI), says rating agency Care Ratings Ltd.

According to CareEdge analysis, India’s average return on inward FDI remains robust at 7.3%, outperforming many emerging and developed economies. “When we look at risk-adjusted return—measured as the ratio of absolute return to standard deviation—India ranks second only to Indonesia among the major countries analysed, highlighting the relative stability and attractiveness of India’s FDI performance. That said, this analysis is based solely on FDI performance from 2014 to 2023”, the report points out. “Looking ahead, India’s strong economic growth, policy continuity, fiscal discipline, large domestic market, and favourable demographics are expected to support the sustainability of healthy FDI returns in the coming years”, it adds.

India’s gross FDI inflows have remained healthy, while net inflows have moderated due to higher profit repatriation and increased outward FDI the report said.

It states that while emerging sectors like semiconductors, electric vehicles, battery storage, and data centres are becoming increasingly attractive destinations for FDI, India’s ability to attract stable, diversified FDI will be strengthened by continued reforms to its financial and regulatory frameworks and by a focus on improving infrastructure and reducing logistics costs.

In the last five years, India’s annual gross FDI inflows have hovered between $ 70 and 85 billion, recording a flat CAGR of around 2% (FY20-25), the analysis notes. However, it adds that the the momentum has picked up, with gross FDI inflows jumping up sharply in FY25 and H1 FY26. “While gross inflows have improved, we are also seeing a higher repatriation of profits by investors and FDI outflows from India. This has led to a sharp decline in net FDI inflows. Net FDI flows have fallen from $ 44 billion in FY20 to $ 1 billion in FY25, and the weakness has continued in FY26 despite some improvement”, the report said.

However, in H1 FY26, Gross FDI inflows increased by 16% YoY to $ 50 billion, while profit repatriation declined by 5% YoY to $ 26 billion. FDI outflows also moderated sharply, rising by 34% YoY in H1 FY26 compared with an 87% YoY increase in H1 FY25. As a result of the decline in profit repatriation and the moderation in outflows, net FDI inflows strengthened to $ 7.6 billion in H1 FY26.