I have come across several investors and research reports that compare the RoE and margins that Nifty companies have clocked in 2008 and the current Aggregate RoE of the Nifty. Though this school of thought has its own merits, there are certain flaws to the same as well..
The sectoral weightage of the index in 2008 and the biggest contributors back then are totally different from what they are at present. Today, the Nifty's weightage is heavily skewed towards financial services whereas back then, it was skewed towards metal and mining
A check on the RoE's of financials in aggregate shows us that most of them clock RoE's in excess of 20% , which leaves little room for meaningful upside. This should severly curtail the abiility of the index to clock the same RoE it did back in 2008
ex of financials, the only meaningful contributor to the index currently is Ril, where the return ratios are heavily supressed due to its massive investments in Jio. that to be fair, will take its own time to turn on the upside.
the other big contributors to the index, ie large cap IT and consumer have always been steady in terms of reporting return ratios in excess of 20% without any meaningful delta.
so if you conclude, the biggest contributors to the make of the index currently are actually already reporting par/above par RoE's - which then leaves us with the question that how does the index actually go back to the Peak RoE's of previous cycles.
I'm by no means trying to predict a correction in profitability/stock prices but all I've done is presented a case of then vs now. A plain vanilla comparison of cycle peaks and trough is in standalone not enough in trying to understand the phase of the cycle we are in currently
