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India: The efficiency king?

Find out how India stacks up against other countries in terms of capital efficiency

India: The efficiency king?

From the Pokhran nuclear test to the Mars Orbiter Mission, India has set an example for the world on how to get the most out of limited resources. And this got us thinking, are Indian companies also the efficiency kings of the world?

But then, what should be enough to declare an economy the efficiency king? How about the country that can boast of having the most companies with an ROE of 15 per cent and above in each of the last ten years? Surely, a stringent enough criterion.

For contenders, we decided to go with the world's top ten economies in terms of GDP. To start with, we only looked into the top 50 companies (by market capitalisation) listed for at least ten years.

Here's what we found.

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As you can see, India stands tall among the countries on the list, with one-third of the companies having superior capital efficiency.

However, black swans like COVID-19 hit some countries harder than others, and 15 per cent in each of the last ten years might be too strict.

To allay such concerns, we also looked for companies that reported an ROE of 15 per cent or more in at least eight out of the last ten years.

Lo and behold, India still leads the pack. Who would have thought India would beat the world's largest economy, the USA, in this regard?

But in terms of market cap, the USA has bigger companies. Okay, let's even the playing field then. Let's repeat the above two exercises for companies with a market capitalisation of at least $1 billion (or about Rs 8,300 crore).

In terms of the number of companies, the USA wins. Not surprising given that the USA has significantly more companies with a market cap of $1 billion and above. However, on a percentage basis, India still maintains its lead.

The most surprising finding from this exercise is that China, the country often touted as the Asian economic juggernaut, doesn't have many highly capital-efficient companies.

The verdict
It is safe to say India is indeed the efficiency king of the world in more ways than one. And the fact that the Indian market is still considered an emerging market makes this accomplishment even more inspiring.

Also read: What is return on equity?


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