India's David vs Goliath profit story: Can smaller firms hold on to their share?

Mint

3 days ago

India's markets are dominated by large firms, with the top 10% by revenue generally commanding more than 90% of net profits. This started changing after the covid-19 pandemic, as smaller firms clawed their way up amid a wider business rebound. But this fightback is now running out of steam.
In 2024-25, companies outside the top 10% bucket accounted for 7.3% of the aggregate net profit earned by the universe of BSE-listed firms, a Mint analysis of 5,096 companies showed. There was no improvement during the previous two years. Does this mean the repeat of the pre-pandemic pattern: David vs Goliath showdowns among Indian businesses?
It's still early days to say so: These smaller firms—the long tail comprising 90% of listed companies—are still better off on this metric than they were before the pandemic-led disruptions. For context, their average share was 4.0% just before the pandemic, compared to 8.3% now.
While larger companies enjoy the benefits of economies of scale and a competitive edge, mid-sized and smaller ones have managed to leave a deeper mark in recent years. 'India Inc. is still concentrated, but not more concentrated than five years ago," said Jayakrishnan Pillai, a partner at consulting firm Deloitte India. 'The peak in profit skewness during 2021 has since reversed."
He also noted that smaller firms had shown stronger profit growth in recent years, thus broadening the earnings base. However, the struggles of smaller companies do not end here. Many sectors are still dominated by one or two companies, and the rising appetite for mergers and acquisitions (M&As) puts smaller companies at risk.
Segment shifts
The smaller companies are still taking a bigger slice of the profit pie than five years ago, but the huge sector-wise variation suggests that the trend is not broad-based. Of the 20 sectors as per Mint's classification, 11 actually recorded a smaller share in the profit pool in FY23-FY25 compared to FY17-FY19. Among the sectors in which space shrank for smaller companies were agriculture, financial sectors, construction and real estate, infrastructure and engineering, and logistics.
A sharp increase in smaller firms' share in textiles, travel, and hospitality, and retail pulled up the overall share. This may have been driven by the sharp pent-up demand that India witnessed when the effects of the pandemic-induced lockdowns faded. Textiles and travel and hospitality are already less dominated by bigger companies (top 10% account for 41% and 56% of profits, respectively), leaving room for smaller companies to capitalize on the post-pandemic boom.
Titans' take
Despite the recent churn, the Indian listed companies' universe sees concentration in many segments and, in some cases, a heavy dominance of one or two players. For example, smaller companies have gained share in the travel and hospitality sector, but the sector is still ruled by Indian Railway Catering and Tourism Corp. Ltd (IRCTC), which takes home 60% of the sector's aggregate profit pie. In the packaged consumer goods segment, ITC Ltd alone commands about 50% of the share.
Eight out of 20 sectors have one company alone accounting for more than 33% of the aggregate profit share of their respective sectors. Three of these are dominated by public sector undertakings—IRCTC, Container Corp. of India Ltd, and NTPC Ltd. If the bucket is expanded to include companies commanding 25-33% share, four more sectors—brokerages, consumer durables, construction and real estate, and oil and gas—will make the list.
Further consolidation?
As smaller companies are constantly fighting for survival, a rising appetite for M&As puts them at risk of being taken over by bigger companies. During the pandemic, several smaller companies faced losses, filed for bankruptcy, and were taken over by bigger players in the segment, analysts said.
However, the recent uptick in M&A activity goes beyond distress buying of insolvent companies—it has more to do with strategic shifts to drive growth, especially since Indian corporations are sitting on a huge pile of cash. Mint reported on 6 July that 285 BSE-listed companies alone were holding ₹5.09 trillion in cash in 2024-25.
'There is hesitation to invest in new greenfield large projects due to the prevailing uncertainties and geopolitical scenario," said Jyoti Prakash Gadia, managing director of Resurgent India, a category I merchant bank. 'However, there is appetite for M&A as the consolidation process involves lesser risk and can help beat competition, create synergies, and improve efficiency and profitability."