Say 2014 in India, and any conversation will inevitably come around to the elections and the new Bharatiya Janata Party government under Prime Minister Narendra Modi. It’s certainly been an eventful year — and not entirely because of politics, though that has managed to colour almost everything. The optimism fuelled by the new government’s decisive electoral victory, coupled with Modi’s ‘business and development first’ agenda, has resulted in a buoyant stock market. But how much of this is hype? And has real economic growth caught up with the optimistic mood?

The short answer to this is: not just yet. But on the positive side, foreign portfolio investors have pumped in over $40.36 billion (Rs 249,546 crore) in 2014, until November 28. Of this, $18.61 billion has come to equities. Separately, the ‘Make in India’ initiative is clearly intended to boost manufacturing and bring in more foreign investment. On the flip side, there are already murmurs that the manufacturing push could have serious environmental consequences. The argument made is that economic development should not be at the cost of everything else. But these voices have not yet become strident, and are lost in the overwhelming wave of positivity.

It’s not going to be possible to measure the actual impact of all this optimism till next year, but a look at this year’s Fortune India 500 through the ‘Make in India’ lens reveals some interesting details.

Manufacturing, with 298 companies, has a 67% share of the total revenue, marginally lower than 68.7% (with 304 companies) in 2013. The revenue share of services (143 companies) has increased to 27.7% from 26.3%. (Companies have been broadly categorised into manufacturing, services, diversified, and construction.) Profits show a similar trend: manufacturing’s share has fallen to 55.1% from 56.6%, while that of services has gone up to 44.1% from 40.9%.

Looked at over three years, the numbers are even more telling. Manufacturing accounted for 69.2% of revenues in the 2012 Fortune India 500, while services accounted for 25.1%. The corresponding figures for profits were 60.3% and 36.4%.
Manufacturing, then, definitely needs a helping hand, and ‘Make in India’ could be just the ticket. And to attract investments, domestic and foreign, the government will need to first ensure policy changes. Specific pain points that need to be addressed include the issue of retrospective taxation, labour, and foreign direct investment.

In a note issued this October, investment advisory JM Financial pointed out that “India currently stands 134th in the global league table for ease of doing business, and remains a laggard in many key issues ranging from ability to enforce a contract to the time it requires to start or liquidate a business”. It adds that if the government’s ambitious manufacturing targets are to be met, these hurdles will have to be cleared soon.

The current issues—high interest rates, high cost of power (and, indeed, the availability of power in the first place), currency weakness (depending on what is being manufactured), infrastructure bottlenecks, land acquisition, and bureaucracy—will add to the challenge of pushing manufacturing.

And dare we mention the long-promised—and equally long deferred—Goods and Services Tax? Apart from the tax implications to the exchequer, the positive impact on manufacturing (largely by creating a seamless national market) cannot be overstated, but political compulsions have delayed this vital reform for years now.

On its part, the government (on the ‘Make in India’ website) claims that “new delicensing and deregulation measures are reducing complexity, and significantly increasing speed and transparency”.

Meanwhile, corporate performance remains under pressure due to global and domestic factors. The rupee witnessed a huge sell-off, and inflation remained elevated with high interest rates. Overall, most Indian companies have reported muted or lower growth compared to fiscal 2013. “The global slowdown also hurt exports,” says Jagannadham Thunuguntla, head of research at SMC Global Securities.

As far as performance goes, textiles and garments, consumer goods, and information technology have been leaders, while the laggards include infrastructure, real estate, and capital goods. No real surprises there.

The big leap: Companies are becoming more efficient. Overall, revenue and profit of the 500 corporations registered slower growth than they did last year. Against 11.5% growth in revenue last year, this year’s 9.49% looks bleak. Profit growth at 4.5% (5.85% last year) gives strong reason to be optimistic, but with ample caution. And there are more nuances to watch out for: The lower growth in profit is highly skewed.

Seen in clusters, performance shows stark disparities. In the uppermost cluster, companies with revenue above
Rs 50,000 crore, top line grew at 13% as was the case last year. In the cluster of companies with revenue below Rs 5,000 crore, 280 companies have posted an average growth of 8.1% while there is an average 19.76% decline in profits. (The 500th company has a revenue of Rs 1,700 crore.)

Government-owned companies, which account for 38% of the total revenue, have seen a 6.6% growth, while private companies with 56.7% share have seen revenue grow by 10.2%. The balance 52 foreign-owned companies with 5.3% share have posted a 25.5% revenue growth.

Profit growth across ownership categories shows that the private sector has been the outlier with 14.3% growth, compared to profit declines of 1.6% and 33.1% for government- and foreign-owned companies, respectively. Shareholders of Fortune India 500 companies have reason to cheer, given that dividend payments increased by 14.8%. Dividend outgo of government-owned companies grew by 11.6% compared to 23% at private companies, while foreign companies’ dividend outgo saw a 13.1% fall.

“Even the management guidance has been optimistic on the back of improvement in investment climate and reform initiative by the new government,” says Thunuguntla.

Broken up by sector, auto and auto ancillary companies have demonstrated a strong comeback with over 17.4% and 19.7% revenue growth, while their profits surged by over 21% and 19.7%, respectively. Within services, the weaker rupee helped information technology companies post a 39.3% rise in profits, on the back of a 30% increase in revenue.

While banks posted 12% revenue growth, non-banking finance companies were at a far lower 4.6%. Bank profits actually declined by 9.6%, a clear sign of a slow economy resulting in non-performing assets, and hence higher provisioning eating into banks’ bottom lines.

The Fortune India 500 turns five this year. Looking back at this half decade, we see that for four of those years, there’s definitely been incremental improvement in performance, but rarely anything to cheer about unreservedly. Over these five years, the revenue of the elite 500 has grown at a compounded rate of 12.7%, and profit at 5.6%. Dividend outgo has increased by 11%, while assets have gone up by 13%.

In 2014, while the dark clouds of uncertainty have been pushed aside by improving fundamentals, the going is still tough for companies lower on the list. A weak domestic currency, stubbornly high interest rates, and mounting wage bills are the key trouble points.

The euphoria and newfound sense of resolve following the electoral mandate, coupled with the global cooling down of commodity prices, especially crude, could propel India Inc. in the coming year. On that hinges the fate of ‘Make in India’: just another catchy marketing slogan, or a war cry that really worked.