Foreign Investment Inflows to Rebound in FY27: CareEdge
Projects net FDI to rise from USD 7 billion in FY26 to USD 15 billion in FY27
Mumbai, 20th July: The overall FPI flows to recover through the rest of FY27, marking an improvement from the USD 16 billion outflow recorded in FY26. CareEdge Ratings notes that Gross FDI rose 18% YoY in FY26, the strongest growth since FY21, to USD 94.8 billion. The momentum continued into FY27, with April gross inflows rising 65% YoY to USD 15.3 billion. The growth in repatriation outflows, which have in recent years offset gross inflows, has steadily moderated over the past two years, from 51.6% in FY24 and 15.8% in FY25 to 5% in FY26. Repatriation fell by 8.7% in April FY27. While monthly data may be volatile, the growth in repatriation outflows has likely peaked. Overall, supported by healthy growth in gross inflows and an expected moderation in growth of repatriation outflows, CareEdge Ratings project net FDI to rise from USD 7 billion in FY26 to USD 15 billion in FY27.
Rajani Sinha, Chief Economist, CareEdge Ratings said, “After ending FY26 on a sombre note, India’s capital account seems to be turning a corner. Healthy growth in gross FDI inflows accompanied by a moderation in repatriation growth is expected and supported by policy measures is expected to increase from USD 7 billion in FY26 to USD 15 billion in FY27. Recent policy measures by the government and the RBI should help attract sizeable inflows of USD 45-60 billion from FCNR(B), ECBs and OFCBs. The tax-related measures for FPIs investing in G-secs, combined with lower Indian equity valuations and the prospective inclusion of India’s G-secs on the Bloomberg Global Aggregate Index are likely to incentivise healthy FPI inflows. Factoring these dynamics with our projections of the CAD, we expect India’s BoP to turn positive in FY27 after two consecutive years of deficit. These developments will buoy the rupee. However, the RBI’s unwinding of its large forward book will cap any sharp appreciation in the currency. We maintain our stance on the strengthening of the rupee but marginally revise our projection and now expect the rupee to average 93-94/USD in FY27.”
India’s capital account ended FY26 with a markedly lower surplus of USD 1.9 billion compared to surpluses of USD 16.6 billion in FY25 and USD 89.5 billion in FY24. CareEdge Ratings notes that several measures have been introduced by the government and the RBI to boost debt and portfolio inflows such as – expansion of the universe of G-secs under the Fully Accessible Route (FAR), tax exemptions for FPIs on G-sec investments, a concessional swap window for fresh FCNR(B) deposits which will be exempt from CRR and SLR requirements, and a forex swap facility to encourage PSUs to raise external commercial borrowings (ECBs).
CareEdge Ratings expects that the current FCNR(B) swap window is likely to be effective despite lower India-US interest differentials than in 2013 when a similar scheme was introduced. While the interest differential has narrowed to around 260 bps in 2026 from over 700 bps in 2013, the current scheme offers longer deposit tenors of 3–5 years, compared to a 3-year tenor in 2013. The measure is likely to attract USD 30-40 billion in FCNR(B) inflows.
FPI Flows to Recover supported by Policy Measures
CareEdge Ratings believes that FPI flows could improve in the months ahead, provided no major tail-risk event materialises. On the debt FPI front, the expansion of the FAR bond universe, tax exemptions for FIIs/FPIs investing in G-secs, and higher investment limits for NRIs and OCIs are expected to support FPI inflows, particularly into debt. Some of the debt-market measures also address key hurdles to India’s inclusion in the flagship Bloomberg Global Aggregate Index. After the January 2026 deferral, Bloomberg Index Services could review Indian government bonds again during its mid-2026 review. Inclusion could give India a potential weight of about 1% in the index, generating passive inflows of around USD 20–30 billion over 10-12 months. While actual inclusion and related passive flows may begin toward the end of FY27 and spill over into the next fiscal year, active investors could move earlier in anticipation of these flows.
For equity FPIs, Indian equity valuations have become more reasonable and are near their lowest levels since the 2020 Covid shock, making these instruments relatively more attractive. Moreover, global equity indices with high exposure to the AI sector have seen greater volatility in recent months. This could benefit India by redirecting some global equity flows, as India offers diversification for investors looking beyond AI-heavy markets. Finally, markets have scaled back expectations of the quantum of tightening by the Federal Reserve on account of energy prices trending lower. These factors together may aid FPI inflows into Indian equities in FY27.
CareEdge Ratings estimates that along with FCNR deposit inflows, the incremental flows from ECBs and OFCBs could collectively generate inflows of USD 45-60 billion. Gaining support from these measures and alongside the projected rebound in net FDI and FPI flows, the capital account surplus is projected to increase from USD 2 billion in FY26 to approximately USD 73 billion in FY27. Combined with the projections of a CAD of 0.8 – 1.2% of GDP, India’s BoP is estimated to be in a surplus of USD 25 – 30 billion. The turnaround in capital inflows will help strengthen the rupee from current levels to an average of 93-94/USD over FY27.
(Disclaimer: The information provided here is investment advice only. Investing in the markets is subject to risks and please consult your advisor before investing.)
(સ્પષ્ટતા: અત્રેથી આપવામાં આવતી તમામ પ્રકારની માહિતી કોઇપણ પ્રકારે રોકાણ/ ટ્રેડીંગ માટેની સલાહ નથી. બજારોમાં રોકાણ જોખમોને આધીન છે અને રોકાણ કરતા પહેલા કૃપા કરીને તમારા સલાહકારની સલાહ લો. વધુમાં અત્રે પ્રગટ થયેલા કોઇપણ સમાચાર કે વિગતો સાથે businessgujarat.in અંશતઃ કે સંપુર્સણપણે સહમત નથી.)
