The penny-pinching magnate

If you were to carry out a long-term sector-wise analysis of how well Indian businesses stack up against their global counterparts, you’d end up with something like the table given below.

And such a table would reveal something rather astounding.

That’s right: over the last 20 years, in terms of the average return on equity (ROE), Indian sectoral leaders bested global sectoral leaders in 10 out of 14 key sectors.

And if you were to consider the 20-year earnings per share (EPS) CAGR, you’d find that Indian sectoral leaders came out on top in 12 of the 14 sectors.

This is undeniably remarkable. How can one explain this?

There are the usual suspects, of course: the standard narratives that hold economic growth, political stability, funds flows, demographics, etc. to be the chief drivers of the Indian success story.

However, the problem is that such narratives are rather easily falsifiable. All we need is a sufficiently large sample of countries that, despite such supposed drivers, have failed to produce businesses that can deliver such numbers consistently. And such a sample isn’t exactly difficult to find.

So, once again: how can one explain this? Obviously, the capital-T Truth of this matter is multi-faceted, and can’t be reduced to a two-line explanation. Nevertheless, we think a likely but often overlooked factor here is the ability of Indian entrepreneurs to navigate challenges across cycles and still deliver consistently superior results.

The data in the table above also seems to bring up another unspoken dynamic that’s worth exploring: whether due to cultural or historical reasons, Indian entrepreneurs are laser-focused on costs, and their ability to minimise input costs (such as labour costs and raw material costs) is a large contributor to superior profitability outcomes.

So the next time you think about the performance of the Indian markets, remember that it probably has more to do with the mental make-up of the entrepreneurs here than with some overarching narratives.

For more actionable insights backed by data and analyses, we invite you to read the latest edition of Netra in its entirety.