For India Inc, it has been a tough year, but the benchmark BSE Sensex has been on a steady rise. Over the period of the BT 500 analysis (October 1, 2016-September 30, 2017), the Sensex rose close to 3,000 points leading to a 20.8 per cent increase in the average market capitalisation of the BT 500 companies. That is a quantum jump from the minuscule 0.1 per cent growth achieved in the same period of the previous year. Since then, too, the market has risen another 1,981 points to close on November 21 at 33,478.
Much of the rise has been driven by the markets cheering the reform measures taken by the government over the year that included the introduction of Goods and Services Tax or GST, the Bankruptcy Code and the recapitalisation of state-owned banks. Since November 2017, India has made it to the Top 100 in the World Bank's Ease of Doing Business rankings for the first time. Add to that the first upgrade of the Indian economy by rating agency Moody's to Baa2, after a gap of 13 years. Thanks to these developments, the Nifty 50 also crossed the 10,000 mark for the first time and is now at 10,327.
The period has also seen record investments in domestic equity funds. According to the Association of Mutual Funds in India or AMFI, equity funds received an inflow of `2.86 lakh crore from November 2016 to October 2017, compared to `1.5 lakh crore in the same period of the previous year. The rise in commodity prices has helped commodity companies such as Hindustan Zinc and oil major Indian Oil earn record profits.
The surge in the stock markets is driven due to the performance of individual companies and because global investment has over the period started to turn to Indian stocks. Emerging markets led by India have been doing better than developed markets globally. Though India and China have slowed down, they are still growing considerably faster than most other markets.
All indicators that the BT 500 tracks are positive this time around. Total income of the Top 500 grew 6.1 per cent, net profits rose 17.8 per cent, and total aggregate assets, too, increased 8.6 per cent over the period. Sales have risen slowly although BT 500 companies have seen profits rise faster primarily due to closer check on costs.
The stock market has also been supporting IPOs during the period. Thirteen newly listed firms in the Top 500 have an aggregate market cap of `1,62,115 crore. Much of that has been driven by the stellar listing of Avenue Supermart and ICICI Prudential Life Insurance, both of which have made it to the Top 50 rankings.
But the true test of an enterprise lies in its profitability. During the year, 15 companies have each raked in over a billion dollars in profits compared to 12 companies last year. However, some things do not change. Just like the year before, there is only one company - TCS - among the five most profitable companies that is not in the commodities - petroleum and coal - businesses.
The top of the market capitalisation table is just like what it was last year. The four leading companies - TCS, Reliance Industries, HDFC Bank and ITC - maintained their ranking at the top. Housing Development Finance Corporation has entered the top five listing for the first time. There are two new entrants in the Top 10 list - State Bank of India (up four ranks to seven) and Maruti Suzuki (up five) to be the 10th company in the listing.
Within the Top 10, Infosys slipped to rank eight primarily due to the controversy over former CEO Vishal Sikka putting in his papers in mid-August, which resulted in the sharpest fall in its stock ever. That one day saw Infosys' market cap decline by `27,000 crore.
The biggest loser from the top 20 is Sun Pharmaceutical Industries (down seven ranks to 15). It is followed by Wipro and Coal India (both down six ranks), Bharti Airtel (down four ranks to 17) and Infosys (down three ranks).
Among the Top 25, the biggest gainers are Indian Oil, up 11 notches to rank 11, and Hindustan Zinc, up six ranks to 23. That is primarily due to the upturn in commodity prices over the past 18 months.
Sun Pharma lost primarily due to a fall in revenues from the US, where its subsidiary Taro Pharmaceuticals saw sales dip due to rising competition and a challenging pricing environment in the US. What's more, the biggest plant of Sun Pharma, located at Halol in Gujarat, is still facing a warning from the US Food and Drug Administration of USFDA.
The only two sectors that saw a fall in market capitalisation in the BT 500 are pharma & healthcare sector (down 6.3 per cent) and IT & ITeS (5.1 per cent). The fall of Sun Pharma, Infosys and Wipro are quite symptomatic of the challenges facing the sectors they represent.
Despite the increase in profits, the debt levels of the Top 100 borrowers (of BT 500) rose 6.9 per cent during the period. Much of the debt is incurred to retain growth. The telecom industry, not surprisingly, notched up the highest rise in debt levels - 26.1 per cent - during the period. It accounts for 11.3 per cent of the total debt of the Top 100 companies, much lower than the power sector (26.9 per cent) and oil & gas (18.3 per cent).
The telecom sector, despite the debt level during the year, managed to record a minuscule growth in market capitalisation at 0.9 per cent, the lowest among all sectors that registered positive growth.
What To Expect
As things stand, the stock market is still on the rise. With the GST Council reducing the number of items in the highest 28 per cent slab to 50 and talk of further rationalisation in the not-too-distant future, that should lead to better performance in the future, barring any major disruption. While it seems unlikely that India will move towards a single GST soon, the move towards reducing rates is a step in the right direction.
Here is a note of caution, though. Despite the improved rating by Moody's, the country is still behind the Baa1 rating it had before liberalisation of the Indian economy in 1991. Some progress has definitely been made, but it is still work in progress. The positive bit for companies and the economy as a whole is that there are more indicators showing things should get better from now on.
That, of course, remains to be seen. But for now, India Inc is on the upswing.