Return ratios for Indian companies haven’t yet bottomed out as the economic recovery gets more and more stretched. In the just ended fiscal year, every 100 of shareholder capital generated only 11.7 or so in net profit, levels last seen in fiscal year 2000-01.

In the final three years of the boom leading up to 2008 global financial crisis, this yardstick, commonly known as return on equity (RoE), was 20%. It has fallen annually for the last six years, reflecting anaemic earnings growth, a demand slowdown and the worldwide commodity slump. With the current fiscal year looking no better, this suggests that the business cycle hasn’t yet turned.

The data here is based on an analysis of 319 firms from the BSE 500 index which account for at least 90% of India’s market capitalization. It doesn’t include banks and financial companies. The high leverage of Indian firms also played a part in depressing RoE numbers as interest payments eroded profits.

Another yardstick, return on capital employed (RoCE), shows a similar trend. This looks at funds that companies take from shareholders as well as any other source such as debt. The 2015 RoCE figure of 14.81% is lower than for any year in the last decade. This is less than half the 33.86% seen in fiscal 2007.

Unsurprisingly, the industries which have bore the brunt of investment demand slowdown and commodity slump figure have seen their returns fall the most. Realty, with its high debt and massive inventory, has seen RoE fall by 35 percentage points from its 10-year peak. Metal companies and cement firms follow closely, with the latter plagued by overcapacity.

While consumer packaged goods firms have managed to hold their own, the real surprise is power firms. But then, this set of companies never had high returns to begin with.

The fall in RoE is not unique to India. In the aftermath of the financial crisis which set off a worldwide slowdown, return ratios have fallen for companies across markets. But India’s high numbers to begin with and the fact that local firms have not deleveraged at the same pace as the rest of the world has meant that the fall in returns has been sharper. At its peak in the last 10 years, MSCI India’s return on equity was as much as 9-14 percentage points higher than peers in Asia, other emerging markets and the developed markets. This has narrowed to 3-5 percentage points in recent times.

Such a fall in returns also means the premium Indian stocks commanded has been dipping. In early 2008, MSCI India was trading at around 27 times one-year estimated earnings, double the 13.5 times for MSCI emerging markets, Bloomberg data show. That gap with both developed and emerging markets has shrunk over the years following the financial crisis. Indeed, if there is slight widening of the premium in the past few months, that’s because of the sharp fall in China, which has big share in emerging market and Asia-Pacific indices.

With markets correcting after the US Federal Reserve’s decision to delay the rate hike, it seems that investors would now focus on fundamentals such as economic growth and corporate earnings rather than easy money. That is not good news for Indian stocks since their return ratios are unlikely to perk up till 2016-17.

Analysts say the numbers for the September quarter may well show a worsening trend, with return ratios at the end of the year lower than they were at the beginning.

Earnings cuts have already started. For instance, UBS Securities India reduced its 2015-16 earnings growth estimates from 10% to 8% for the National Stock Exchange’s 50-stock Nifty index. The estimates for 2016-17 were trimmed from 18% growth to 15%.

“The trend in RoE is likely to continue declining. It is only in FY17 that we could see some reversal of the current trend," said Rajat Rajgarhia, director at Motilal Oswal Financial Services Ltd, a brokerage.