PROFITABILITY DYNAMICS IN THE INDIAN INORGANIC CHEMICAL INDUSTRY: AN EMPIRICAL INVESTIGATION USING NARDL ANALYSIS

Abstract

A study of asymmetrical determinants of profitability of the Indian inorganic chemical industry over the period 1994 to 2024, using the firm level observations from CMIE Prowess database. The general purpose is to determine the role played by the Cash Conversion Cycle, Research and Development Intensity and Net Fixed Asset Turnover on profitability of firms operationalised in terms of Return on Assets. A Nonlinear Autoregressive Distributed Lag approach is used, which allows to split the explanatory variables into positive and negative partial sums, reflecting asymmetries for both short and long run dynamics. Result showed that the profitability in Indian inorganic chemical sector exhibits significant nonlinear and asymmetric reaction to financial and operational perturbations. In the short run, positive shocks to the efficiency of working capital in the form of declines in major positive effects on profitability, while negative shocks have relatively weak effects. The results indicate that profitability in inorganic chemical industry of India is dominated by asymmetric financial dynamics, thus highlighting the need for effective working capital management, efficient research and development investment and balanced asset utilisation to ensure long term financial viability and competitive advantage.