Indian firms’ return on equity (ROE) which has been on a decline since 2008, is showing signs of stabilisation at around 15 per cent, says an HSBC report.
ROE shows how much profit a company generates with the money that the shareholders have invested.
According to the global financial services major, in the last few years ROE and margins have fallen in all major sectors in India but there are clear signs of stabilisation on both fronts.
Profit margins of Indian companies have fell from over 20 per cent in 2007 to 13 per cent in 2013 but by 2015, they have recovered to 14.1 per cent.
“While corporate ROE has been in decline since 2008, it now appears to be stabilising at around 15 per cent,” HSBC said in a research note adding that “better balance sheet management could support a recovery in ROE, especially if margins continue to rise from current low levels.”
According to the report, there were several reasons for the decline in profit margins of Indian companies prior to 2013, including increased domestic competition.