Foreign private sector firms' return ratios at 17-year high, shows data

RoCE trended higher in FY25 amid a drop in net FDI

Return ratios for foreign private sector companies were last this high during the boom years of 2006-07 (FY07).

 

The return on capital employed (RoCE) stood at 13.21 per cent for 2023-24 (FY24), according to data from the Centre for Monitoring Indian Economy.

 

Preliminary data for 2024-25 (FY25) shows RoCE at 21.62 per cent, though this is based on a limited sample of firms. The FY24 figure was already the highest since FY07. Return on net fixed assets rose to 32.3 per cent in FY24 and touched 102.41 per cent so far in FY25, again based on a limited sample. The FY24 figure is also the highest since FY07.

 

RoCE broadly indicates the profit generated per ₹100 of capital employed, including debt and equity. Return on net fixed assets reflects the profit generated per ₹100 worth of fixed assets (machinery, etc.) after accounting for depreciation. FY25 data was available for only 21 non-financial foreign private sector companies. The FY24 sample, which included 1,668 non-financial firms, is more reliable as an indicator.

 

This upward trend comes even as net foreign direct investment (FDI) declined 96.5 per cent to $400 million in FY25, following a 63.8 per cent year-on-year drop in FY24.

 

“Net FDI inflows, however, moderated during this period due to higher repatriations and outward investment, which is a sign of a mature market where foreign investors can enter and exit smoothly,” noted the Reserve Bank of India bulletin released on May 21.

 

“That Indian overseas direct investment increased nearly by $12.5 billion during FY25, even as uncertainty reigned in the world, warrants attention, especially given their cautious attitude towards domestic investment,” observed the Department of Economic Affairs’ Monthly Economic Review dated May 27.

 

“Globally, the situation was not very conducive in FY25, with a lot of geopolitical tensions and slowing global growth,” said independent market expert Deepak Jasani. He said the major trend during the year had been an emphasis on bringing supply chains closer to home, if not manufacturing within the country.

 

The net FDI figure also factors in the money overseas investors repatriated through stake sales, several of which occurred due to elevated valuations. 

 

Inward FDI in the first half of the current financial year (2025-26) may be affected by uncertainty stemming from US President Donald Trump’s moves to increase tariffs with major trading partners, Jasani noted.

 

“After September, there may be some clarity,” he said. Key sectors in the services domain that could see interest include hospitality, travel and tourism, as well as global capability centres. Manufacturing segments expected to attract interest include renewables, food processing, electronics, capital goods, power, and infrastructure, said Jasani.

 

While global market conditions may be uncertain, foreign private sector companies serving Indian customers are well-placed, according to K Ramanathan, founder and chief executive officer of Spectrum Wealth.

 

“Manufacturing companies that produce for the domestic market... return ratios are quite good,” he said.

 

Foreign manufacturing companies also showed a higher RoCE (17.21 per cent) than the overall figure of 13.21 per cent. Foreign services companies saw a decline in RoCE to 8.25 per cent in FY24 from 9.47 per cent the previous year. Electricity (6.89 per cent) and mining (10.47 per cent) companies also saw a decline, while construction and real estate companies showed an improvement (5.2 per cent).

 

Sales growth has been less robust for foreign private sector companies overall. It remained in single digits in FY24 at 9.46 per cent. The growth for the available firms in FY25 was lower, at 4.41 per cent.