Understanding what is going on in India is never simple, for there are always contradictory narratives. One story is that Indian business is getting increasingly oligopolistic, with the dominant players gaining ground in most sectors and leading therefore to economic concentration. Whether it is steel or cement, aviation or automobiles, telecom or banking, organised retailing or the media, ports or airports, the smaller players are either getting bought out (Future and Metro in retailing, GVK in airports, Krishnapatnam among ports), going bust (Kingfisher, Jet Air and Go First in aviation), becoming marginalised (many public-sector banks, Vi in telecom), or simply exiting the market (Ford and GM).

Alongside this, data analysis by Marcellus shows that just 20 companies account for a stupendous 46 per cent of the profits of corporate India. What is more, the companies in the Top 20 show little change from one decade to the next, with the dropouts being mostly public-sector entities. If one takes just the top private companies, about 15 have remained the most profitable and, by definition, been growing in dominance over two decades (2002-22).

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This stability at the top may not have been the story in past decades. Certainly, the 1992-2002 decade saw churn in corporate India as the operating environment for business changed with economic reforms. The new stability at the top suggests that the economy may have become less competitive or less transformative, so that the winners from that decade of churn became entrenched players subsequently. This conclusion must be qualified by stating that the Top 20 comprises only listed firms, whereas many increasingly important businesses, mostly foreign-owned, have remained unlisted: Hyundai and Coca-Cola, Samsung and Bosch —though many of these companies too now have entrenched positions in the market. 

The story line that runs contrary to oligopolistic dominance is that the best returns in the stock market in recent years have come not from the largecap stocks but from the midcap and smallcap list of companies, most of which do not enjoy even instant name recognition. This has been true of the Samvat year that is ending, and as an average for the past five Samvats. Indeed, the Marcellus numbers show that the shareholder returns offered by the Top 20 have suffered in the last decade, compared to the previous one. As a compound annual average, shareholder returns fell from 26 per cent in the 2002-12 decade to just 15 per cent in the decade that followed. These trends don’t sit well with the story of an entrenched set of oligopolies.

An easy explanation would be that the economy grew more slowly in the 2012-22 decade; hence shareholder returns suffered. And with less growth, the environment became more difficult for smaller players. But how does that fit the fact that smaller companies have done better for shareholders than the largest ones? As it happens, life has become easier for the small and midcap sectors because of tax changes (the goods and services tax replacing a plethora of indirect taxes), the advent of digital payments, the growth of cashflow-based lending easing access to finance, the growth of organised retailing making market penetration smoother, and improved logistics facilitating an expanded footprint for regional players.

One scenario would be that many large companies went on an investment binge that did not end well. The resulting “twin balance sheet crisis” impacted their operating results. Quite a few went into bankruptcy and were picked up on the cheap by the bigger players, leading to market consolidation. Corporate profits as a whole nosedived in relation to gross domestic product (GDP) during this period, but they have been recovering and in fact outstripping sales growth.

Profits as a share of GDP are not yet back at the levels of 2008, which is understandable given the different economic tempos then and now. But with cash in the bank and low levels of debt, the bigger players may use the coming decade to establish their dominance even more in markets that require scale. However, on the evidence at hand, that does not seem to mean that smaller companies will do poorly. There is vibrancy yet in the broader corporate sector.