AROUND THE world industries have grown more concentrated over the past few decades. In America 20 companies capture roughly a quarter of all corporate profits. If you thought that was sobering news for budding American capitalists, spare a thought for their Indian counterparts. According to a study by Marcellus Investment Managers, a Mumbai-based firm, last year a score of companies accounted for nearly 70% of India Inc’s total earnings, up from 14% three decades ago (see chart). In a growing number of product categories—from paint and adhesives to biscuits and baby formula—monopolies or duopolies skim off 80% of profits.
Broadly, Marcellus’s top 20 can be split into three groups. The first contains well-run companies with strong management of capital and data. They inhabit vibrant sectors like information technology (notably Tata Consultancy Services and Infosys), finance (for instance, HDFC bank) and consumer goods (ITC, a cigarette-maker). Their capital costs are low; HDFC can fund itself more cheaply than India’s government. So is their level of debt—a blessing given that India Inc pays average interest of 9.25% on credit, three times as much as a typical American firm. ITC and the IT consultancies are in effect debt-free.
Companies in the second group are unusually lucrative for less deserving reasons. They...
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