Corporate profit to GDP hits 15 year high as input cost moderates

Thanks to sharp run-up in profits of oil marketing companies and banking sector, the corporate profit to GDP ratio has hit a 15-year high in the financial year March, 2024 as input cost moderates amid healthy demand in most sectors.

The corporate profit represented by the Nifty-500 universe to GDP increased to 4.8 per cent.

The improvement in profit was led by the BFSI (banking, financial services and insurance), oil and gas and automobile sectors which contributed 95 per cent of the total improvement, according to the Motilal Oswal Financial Services report.

In contrast, sectors such as metals, technology and chemicals contributed adversely. The NSE-500 index accounts for 91 per cent India’s market cap.

Nominal GDP growth

The corporate profit for the Nifty-500 universe was up 30 per cent last fiscal to ₹14.11-lakh crore against ₹10.88 lakh crore in FY23.

The nominal GDP grew 9.6 per cent y-o-y to ₹295-lakh crore (₹269-lakh crore).

Analysts’ perspectives

Kunal Shah, Senior Research Analyst, Carnelian Asset Management & Advisors said, the strong fundamentals of India backed by sound fiscal position and stable currency is reflected in a healthy GDP and corporate earnings growth of 4.8 per cent last fiscal from 4 per cent in FY23.

This ratio will surpass the level of 5.2 registered in 2008 when there is improvement in export-oriented sectors such as technology, chemicals coupled with traction in rural related section of the economy, he said.

Manish Chowdhury, Head of Research, StoxBox said the current slowdown in domestic demand is a temporary blip and the growth trajectory will return after the revival in rural demand.

The increased government focus on reducing dependence on imports, strong capex trajectory and improved operational efficiencies bodes well for the overall oil and gas sector while other sectors such as capital goods, FMCG and power would further aid the overall corporate profitability, he said.

Arvinder Singh Nanda, Senior Vice President, Master Capital Services said

Global geopolitical impacts

India Inc’s story in FY25 will be supported by new policy thrust, post-election certainty and a normal monsoon, while companies that want to capitalise on the Q4 volume recovery may have to maintain a robust balance sheet in FY25.

However, he said the evolving global geopolitical issues may have an impact domestic cyclical such as metals, oil and gas as their profits are linked to global developments.

Munish Aggarwal, Managing Director, Head Capital Market, Equirus said the forecast of surplus rainfall this year augurs well for rural income and help reduce inflation which in turn will boost discretionary spending. This should keep the corporate profit to GDP growth intact, he said.

Further, he added key commodity prices remain range-bound and thus higher growth is expected to help companies grow at a faster pace while improving margins.