Indian companies sit on a cash mountain—will shareholders reap the rewards?

A report by Mumbai-based IiAS (Institutional Investor Advisory Services) of the Sensex 500 companies—with a few exclusions—shows that 66 of these companies collectively held ₹2.7 trillion in cash and equivalents at the end of FY24.

Of this amount, ₹99,100 crore remains unallocated for any purpose after accounting for capital investments or acquisitions. IiAS says these funds could be returned to investors through dividends or share buybacks, and raises questions over their dividend distribution policies.

“In the absence of a clear plan to use the excess cash, boards must consider returning the cash to shareholders in the form of dividends or buybacks," analysts at IiAS noted in their report that was released on 26 December.

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Tech heavyweights and industrial firms dominate the list. HCL Technologies, Bharat Electronics, LTIMindtree, Siemens, and Sun TV lead with ₹46,870 crore in combined cash reserves, of which ₹32,540 crore is deemed excess. Other notable mentions include Wipro Ltd, Hindustan Unilever Ltd, and Hero MotoCorp Ltd.

Are companies doing enough?

To be sure, many of these companies are already rewarding shareholders handsomely. The report notes that the 66 companies returned ₹57,397 crore to shareholders in FY24, equating to 54% of their aggregate consolidated profits. But IiAS managing director Amit Tandon argues there’s room for more.

He said that companies must take shareholder approval to hold back excess money on their balance sheets, or clearly state capex or expansion plans for the capital. “We are not saying companies should give out all their cash reserves, but whatever is excess belongs to the shareholders," Tandon said.

For companies where the return on capital employed (RoCE) for operating business surpasses returns from cash holdings, Tandon emphasized that distributing the surplus is a logical move. Not doing so, he warned, could drag down overall returns and the company’s market valuation.

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RoCE is a financial metric that helps evaluate how much profit a company generates for every rupee of capital invested in its operations. Companies with a higher RoCE are generally valued higher.

Four firms—Honeywell Automation India, Bosch, ZF Commercial Vehicle Control System India, and Abbott India—could pay over ₹500 per share in incremental dividends, according to the report. Notably, these are subsidiaries of multinational corporations.

Weak dividend policies

The report also flagged gaps in existing dividend distribution policies, with just 16 of the 66 companies having clearly defined dividend payout ratios linked to profits.

Most others, including high dividend payers such as Infosys and Bajaj Auto, tie their payouts to cash reserves, leaving shareholders with little clarity on future returns.

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“As a result, the dividend distribution policies often provide no guidance to shareholders on possible returns," the report said, adding that a link between dividends and profits could help investors better assess returns from a stock.

The methodology

IiAS started its study with the Sensex 500 constituents, and excluded banks, insurers, and financial firms, along with companies facing profit declines of more than 20% in FY24.

Firms with significant leverage or negative free cash flows were also filtered out, leaving only those with robust financial health and cash reserves exceeding last year’s net profit.

With Indian companies sitting on a cash mountain, the call for clearer policies and larger payouts is growing louder. The ball, now, is in the boardrooms.

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