Welcome to the September 2025 edition of Netra, where we present data-driven market insights that can inform your investing decisions.

This month, we’ll talk about Indian companies’ low ROE, why a weaker rupee should be taken seriously, and how Indian IT giants might be an emerging opportunity.

India’s ROE puzzle

Back in 2003–07, Indian companies were on fire: they consistently delivered 20-25% ROE (return on equity). Post-Covid, we’ve seen a similar boom with strong topline growth, peak margins, and rising profits.

But here’s the puzzle: if the environment looks just as good, why is the ROE stuck at ~15% instead of 20%+?

One reason is that the asset turnover, a measure of how efficiently a company uses its assets to generate sales, has declined.

In the earlier upcycle, every ₹100 of assets generated about ₹150 of sales. Today, that’s down to just ₹120–130, as you can see below.

At the same time, companies are running with lower debt, which inflates the equity base and drags down ROE. Add to that slower nominal growth and tougher competition, and profitability feels harder to sustain.

So while 15% ROE sounds healthy, it’s clearly below the highs of the past. For returns to rise, companies will need stronger demand growth, which will give them the confidence to take on more leverage. Unless that happens, this cycle might not deliver the same punch.

India’s FX Reserves: A Proxy For External Troubles?

If you’re an equities investor, your mistakes can remain hidden for a while: overpay for equities and an irrational market might still float you up. Even in bonds, if you buy the wrong duration, you can still hold to maturity and collect coupons.

So errors in stocks and bonds can often be managed by staying conservative.

Currencies are different. Ignoring a lifetime low is a serious mistake.

Why? Because when a currency hits a new lifetime low, it does so despite the relevant central bank’s efforts to prevent this. That’s a red flag.

Today, the rupee is at record lows against the dollar, even though the US Dollar Index itself isn’t that strong. India’s FX reserve accretion has also slowed down, as can be seen below. That’s a signal: stay alert, as a spillover effect could hit bonds and stocks too.

Large-Cap IT: An Emerging Relative Opportunity?

Global IT looks overheated, but Indian IT firms seem to be in a better spot. Over the past three years, large-cap IT stocks like Infosys and TCS have corrected meaningfully, even as their fundamentals have remained solid. The current ROEs for many of these companies are at or above long-term averages, and valuations have returned closer to historical norms.

Interestingly, the earnings growth for industry leaders has outpaced shareholder returns, showing a clear de-rating.

The main reason for this disconnect is the absence of “AI froth” in Indian IT giants. Unlike their global peers, these giants haven’t ridden the hype wave; instead, they’ve focused on enabling Generative AI and maintaining strong Total Contract Value (TCV) pipelines.

At current levels, IT is a relative play. But if prices fall further, it could become an absolute one.

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