It is not just households that have stayed away from riskier investments, to park their surpluses in safe havens such as gold. India Inc has been at it too.

An analysis of listed companies based on their latest balance sheets shows that Indian companies have been hoarding cash in recent years, rather than deploying it in expanding their core business.

Cash balances for 90 companies (excluding banks and finance companies) from the CNX 500 that have so far released their annual reports, amounted to a whopping 24 per cent of their total assets in March 2012.

The proportion of assets that companies are holding as cash has also risen sharply from three years ago. During the worst phase in the 2008-09 credit crisis, cash balances for the same companies, were only 19 per cent of the assets.

Cash balances here refer not only to actual cash and bank deposits held by companies but also to investments in short-term options such as debt and liquid mutual funds.

In fact, the absolute amount of cash (and liquid investments) that companies are holding is now 63 per cent higher than March 2009 levels.

Investment slowdown

In contrast, net block, which represents plant and machinery used in production, has increased by just 33 per cent in this period. That is a sign that the slowdown in private investments, which everyone is talking about, is indeed a reality, at least for these leading companies.

In the last three years, companies did prefer to retain more of their profits as cash, rather than deploy it in new machinery or projects.

Further number-crunching reveals that the increase in sales and profits over the past three years has swelled corporate coffers though. Shareholder funds or retained profit for these companies jumped 48 per cent over the three-year period.

With interest rates rising, the policy environment becoming clouded and the domestic slowdown resurfacing, companies have cut back on taking fresh loans too. While the equity portion in capital has risen, loan funds have actually declined over the three-year period. Higher equity combined with lower debt funding has brought down leverage for these companies.

Given that the majority of companies are yet to publish their latest annual report, whether these patterns are repeated for the rest of India Inc needs to be seen.

However, the increasing cash hoard at corporate India does flag two issues for investors.

* The rising cash as a proportion of assets explains why Indian companies are seeing declining returns on equity. After all, treasury operations, however well-managed, cannot replicate returns from the core business. Going forward, unless the cash is redeployed towards expansion projects and so on, shareholder returns may remain muted.

* If companies are going to stay cautious on investments, the least they can do is return more of their annual profits to shareholders by way of dividends and buybacks.

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