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India Inc’s profit as a percentage of gross domestic product (GDP) has surged to a 15-year high, driven by significant improvements in the financials, energy, and automobile sectors.
According to an analysis by Motilal Oswal Financial Services, the profit-to-GDP ratio for Nifty 500 companies rose to 4.8% in 2023-24 (FY24), up from 4% in the preceding financial year (FY23).
For the entire listed universe, this ratio stood at 5.2%.
Sectorial Contributions
The remarkable increase in profits is largely attributed to the banking, financial services and insurance (BFSI), oil and gas, and automobile sectors, which collectively accounted for 95% of the total improvement.
Financial, energy (oil & gas), and automobile companies were the primary drivers of this growth.
Year-on-Year Growth
The corporate profit for the Nifty-500 universe grew at a robust pace of 30% year-on-year (Y-o-Y) in FY24, a significant rise from the 9.3% Y-o-Y growth in FY23.
The previous year, FY22, saw an even higher growth rate of 52% Y-o-Y. The growth momentum remained strong in the last quarter of FY24, with the top 200 firms posting a Y-o-Y earnings growth of over 20%, surpassing consensus estimates by around 500 basis points.
Nominal GDP vs. Corporate Profits
The nominal GDP grew by 9.6% Y-o-Y in FY24, compared to a 30% growth by Nifty-500 companies.
In FY23, the GDP grew by 14.2%, while the corporate sector saw an 18.9% increase.
BSE PSU Index Performance
The 53 companies in the BSE PSU index registered a substantial 48% increase in net profit in FY24, reaching ₹5.07 lakh crore, up from ₹3.43 lakh crore in FY23.
“We expect the ratio to sustain going forward, as India remains in a very good shape with excellent macros, inflation below 5%, both current account and fiscal deficits well within tolerance band, a stable currency and healthy corporate earnings,” stated the Motilal Oswal report.
Positive Outlook
India Inc’s profit-to-GDP ratio has achieved a significant milestone, reflecting the robust performance of key sectors and a resilient economy.
The sustained growth in corporate profits suggests a positive outlook for the future, buoyed by stable economic fundamentals.
