Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return. The worst business to own is one that (does) the opposite— that is, consistently employ ever-greater amounts of capital at very low rates of return," Warren Buffett wrote in his letter to shareholders of Berkshire Hathaway Inc. in 1992.

How does Reliance Industries Ltd (RIL), the country’s largest employer of capital by far, measure on this count?

Analysts at Jefferies India Pvt. Ltd estimate that the company’s large investments outside of its core Indian energy business have lowered its return on capital employed (ROCE) by 8.8 percentage points between fiscal years 2002 and 2017 (FY02 and FY17).

The company’s ROCE stood at merely 6.4% in FY17, and without the $53 billion (around Rs3.4 trillion) worth of investments in other sectors such as telecom (Reliance Jio Infocomm) and retail, return ratios would have been at respectable double-digit levels, Jefferies’ calculations suggest. The brokerage firm expects return ratios to rise as the telecom business gains scale and turns more profitable, although even then ROCE is expected to inch up by less than a percentage point each year and reach 9% by FY22.

Interestingly, even though RIL has been committing ever-increasing amounts of capital at low rates of return—an anathema in Buffett’s books—investors have been lapping up the company’s shares like never before. RIL’s shares have risen nearly 80% from their lows in early 2017, which is no mean feat keeping in mind the company’s free float market capitalization of Rs3.14 trillion.

One might argue that it’s foolhardy to compare historical return ratios with stock returns, since the latter prices in future expectations.

While this is true, from the looks of it, return ratios in the future aren’t expected to go through the roof either. In fact, Jefferies’ analysts say ROCE could well fall to lower levels (than the projected 9% ROCE for FY22) if the company steps up its investments again.

Perhaps investors are pricing in the so-called unlocking story, where RIL markets the Jio story well and recoups a large part of its investment back through an initial public offering. But as pointed out in this column earlier, investors appear to be pricing in all this and more, what with Jio already being valued at levels that are higher than industry leader Bharti Airtel Ltd’s India wireless business.

In more ways than one, investors seem to be throwing caution to the wind.