Corporatisation helps investors

Written by Saikat Neogi | Updated: Jan 18 2013, 05:30am hrs
Greater transparency and accountability of companies help stock market investors. And as India Inc become more corporatised, it can have better access to money from the capital markets and the banking system, ensure greater compliance with tax laws and separation of ownership and management can lead to better corporate governance.

In fact, the share of corporate Indias revenues, Ebitda, net profits and wages in the gross domestic product (GDP) have risen significantly since the mid 90s and all these factors will bode well for stock market investors in the long run. A Morgan Stanley research shows that revenues to GDP is up at 90% in FY12 from 35% in the mid 90s. Similarly, the share of Ebitda in GDP has more than doubled in the same period and the share of corporate wages in GDP is now at 7.2% from 2.8% in the mid 90s.

Interestingly, the private sector has done much better than the public sector as its revenue share in GDP has risen by more than three times from 18% to 61% since the mid-90s. Even Ebitda to GDP of the private sector is up at 12% currently from a mere 4% in the mid 90s. The report suggests that the full benefit of this corporatisation should be felt in the next 24-36 months.