Corporate India is cycle-ready, and waiting on demand

The return on equity of the NSE 500 (ex-financials) stands at 15% in FY25, against 22% at the 2005–07 peak. Decomposing ROE into its three engines explains the gap, and describes the setup for the next cycle.

Margins: recovered. Net profit margin is back to about 8%, near the levels of the last boom. The improvement reflects efficiency, lower corporate stress and commodity normalisation rather than a demand surge.

Asset turns: the missing engine. Revenue per unit of assets is 0.73, versus 0.95 at the 2006 peak. Companies have sweated existing assets rather than built new ones, and without broad topline acceleration, utilisation gains have stalled.

The third engine, leverage, is deliberately idle. The equity multiplier sits at 2.46, back where the 2003 cycle began, and median debt-to-assets for listed India has fallen to 16%, the lowest in a series going back to FY02. The last ROE peak was a three-engine cycle; this one has run on one and a half.

Low debt, healthy banks (credit growing ~14% a year, NPAs benign) and repaired balance sheets mean the system can fund a new investment cycle whenever companies choose to build. After 2011, the constraint was balance-sheet capacity. Now it is demand visibility: companies build when they believe future demand will absorb the capacity, which ties the next capex cycle directly to the consumption recovery.

The near-term indicators have turned mildly supportive. Industrial credit grew 15% in FY26, IIP capital goods 8%, cement volumes 9%, and BSE 500 capex has now compounded positively for five years.

What we’ll watch: asset turnover inflecting above 0.73; whether the equity multiplier stops falling; and the capex indicators (industrial credit, capital goods output, cement) holding their FY26 acceleration into FY27.