India Inc Stronger After Covid but Starved of Growth as Demand Falters: Nuvama

Indian companies may have emerged from the Covid years financially fitter, but the growth runway ahead looks increasingly constrained as demand across the economy remains weak, according to a new report by Nuvama.

The brokerage notes that the post-Covid improvement in India Inc’s internal return on invested capital (I-CRoIC) was driven largely by restructuring, cost cuts and balance-sheet repair—not by a revival in underlying demand. That phase, it warns, is now largely over.

I-CRoIC has stabilised in the high teens over the past five years, but demand growth continues to lag, remaining below 10 per cent year-on-year and showing signs of further slowdown. Nuvama sums up the situation starkly: “India Inc is all dressed up, but has nowhere to go.”

The report attributes the demand slowdown to weak exports and sluggish wage growth—factors that risk doing lasting damage. Persistent demand weakness today, it cautions, could erode the economy’s future growth potential.

Over the past decade, demand across sectors has grown at a compounded annual rate of just 10 per cent. In seven of the last ten years, growth failed to cross that mark—a sharp contrast to the 2000s, when demand expanded at close to 20 per cent CAGR for extended periods.

This prolonged slow cycle has made reinvestment increasingly risky. A brief post-Covid demand spike prompted aggressive capacity expansion in sectors such as IT, consumer durables, quick service restaurants and chemicals. When demand normalised, profitability in these sectors fell sharply.

As a result, several stocks have delivered flat returns over the past four years, weighed down by poor investment decisions and elevated valuations. This again marks a break from the 2000s, when strong demand easily absorbed new supply and protected margins.

Nuvama also flags a structural shift: technology adoption and easier access to capital are weakening traditional moats such as brand strength and distribution networks. Companies attempting to preserve high margins may now face slower growth or rising competition—a trend already visible in FMCG and paints. At lofty valuations, this dynamic threatens weak medium-term returns.

Looking ahead, the report warns of rising reinvestment risks in sectors like power, industrials, hospitals, automobiles, and cables and wires. After strong recent performance, these segments are now grappling with rising supply, softening demand and peak margins—making the next phase of growth far less certain.