Decoding last 10 years of India Inc.’s Fundamentals

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The markets seem to be in a confound state between uncertainty about hopes of economic recovery and lack of earnings turnaround.  We took a look at some numbers regarding the broader market fundamentals in India to assess the mismatch, if any, between expectations and realities.

For the purpose of this analysis we compared last 10 years fundamentals. Our analysis has found that while the India Inc.’s balance sheet has bulged significantly in last 10 years (as seen in Chart 1 below), as evident by rising ‘total assets per share’, the ‘muscle’ however seems to be missing as reflected in declining return on assets.

This raises the pertinent question of ‘Institutional Imperative’ (size) versus ‘Prudent Capital Allocation’ (efficiency).

Chart 1: 

Above chart is based on Total Assets per share and RoA (both incl. financials) using Bloomberg data for BSE 500.

Declining returns for India Inc. has resulted in dwindling trend in corporate profits contribution to GDP in last 10 years (as seen Chart 2 below).Though one could also interpret it as signs of ‘bottoming out’ and that this might start reverting upwards now, but expectations of any meaningful growth spend from corporate India seems a premature idea as of now.

Chart 2: 

Corporate profits as percent

(Source: Web based articles, Telegraph, ToI, Firstpost etc.)

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