Manya Rathore
Research expert covering India
Earlier this year, India celebrated its ascent to one of the world’s largest stock markets in terms of market capitalization surpassing four trillion U.S. dollars, valuing more than its GDP. As per the Securities and Exchange Board of India (SEBI), all companies listed on stock exchanges are ranked based on their market cap. The top 100 are usually large-cap companies with a market cap of around 200 billion Indian rupees or more. However, the country also hosts a large ecosystem of large unlisted companies accounting for half of the estimated corporate profit after tax, and more than two-thirds of corporate GVA.
Economic estimates suggest that larger firms were the key beneficiaries of the corporate tax cut as they availed more deductions and incentives or shifted to the new lower tax regime. The effective tax rate for leading companies was lower than the statutory tax rate in the financial year 2022. The cuts pushed the corporate tax rates below personal income tax in 2020. Contrary to the anticipated stimulus, there was a decline in corporate investments in the financial year 2023, even as corporate profits surged.
It's all in the family: India’s major conglomerates
In India, wealth creation is historically attributed to large promoter families. The Ambanis, the Adanis, the Birlas, and the Bajajs are household names in the country. One of the oldest family-owned businesses in the country, the Tata Group, is now one of the most successful professionally managed groups in the country. The country’s business moguls regularly feature in the leagues of the world’s richest, and various home-grown family conglomerates have been front-runners globally across different sectors. To name a few, the Ambani-owned oil-to-telecom conglomerate, Reliance Industries, is the world’s largest in terms of market value. Tata Consultancy Services ranks among the top ten globally. Aditya Birla Group is the second-largest cement manufacturer in the world based on revenue. And Adani Enterprises is the leader in trading and one of the fastest wealth-creating companies in India.What was the impact of corporate tax cuts?
In 2019, the central government introduced corporate tax cuts with the intent to promote investment and boost employment. The rates were slashed for existing companies and for new companies that launched new capital investment projects. This was the single largest reduction in almost three decades.Economic estimates suggest that larger firms were the key beneficiaries of the corporate tax cut as they availed more deductions and incentives or shifted to the new lower tax regime. The effective tax rate for leading companies was lower than the statutory tax rate in the financial year 2022. The cuts pushed the corporate tax rates below personal income tax in 2020. Contrary to the anticipated stimulus, there was a decline in corporate investments in the financial year 2023, even as corporate profits surged.
The Big gets listed: IPO frenzy
The IPO scene is rife with new listings from big conglomerates and companies. Reliance Industries’ demerger of its financial arm Jio Financial Services and listing it as a separate entity is being considered a move towards gaining a dominant presence in the financial services industry. Vedanta Ltd also decided to split its five businesses and list them separately. Other large business houses like Tata, Birla, and Piramal are following IPO suit as their new businesses reach scale and size after around two decades of their last market offerings. More industry heavyweights are expected to take their companies public to unlock value and raise funds. And the time-tested large conglomerates are undoubtedly turning out to be investor’s favorites.
