Corporate profit to GDP ratio of India Inc. moderates in 2023, says Motilal Oswal. Check details
Motilal Oswal expects the ratio to sustain going ahead. It underscored India’s earnings cycle has seen a smart turnaround after almost a decade.
PremiumThe corporate profit to GDP ratio for the Nifty500 companies and listed India Inc. firms moderated mildly in 2023 because of elevated commodity prices. Moreover, the profit for the Nifty500 companies grew at a slower pace of 8.7 per cent YoY in FY23 after surging 49 per cent YoY in FY22 and 50 per cent YoY in FY21, said a report by brokerage firm Motilal Oswal Financial Services.
However, the brokerage firm highlighted that despite the pandemic-induced gloom and weak economic recovery, corporate profits recovered smartly in 2020-23. During this period, the ratio improved for 20 of 25 sectors, of which 76 per cent was driven by PSU banks (22 per cent), private banks (20 per cent), telecom (11 per cent), metals (8 per cent), insurance (8 per cent), and oil & gas (7 per cent). Cement, media, and consumer durables were the only sectors to witness a compression in the ratio, Motilal Oswal said.
"In 2023, the corporate profit to GDP ratio for the Nifty500 universe and listed India Inc. contracted marginally to 4.1 per cent and 4.3 per cent after rebounding in 2022 to reach a decade high of 4.3 per cent and 4.5 per cent, respectively. The YoY decline was led by global commodities, which contributed adversely to the ratio, while BFSI contributed positively," said Motilal Oswal.
"The 0.2 per cent reduction in the 2023 profit-to-GDP ratio for Nifty500 was led by metals (0.4 per cent decline) and oil and gas (0.3 per cent decline). BFSI improved by 0.4 per cent. The corporate profit for the Nifty500 universe grew at a slower pace of 8.7 per cent YoY in FY23 after surging 49 per cent YoY in FY22 and 50 per cent YoY in FY21. We note that FY23 nominal GDP jumped 16.1 per cent YoY – faster than FY23 corporate profit growth – preceded by 18.4 per cent YoY GDP growth in FY22 and a contraction in GDP recorded in 2021," said the brokerage firm.
The brokerage firm expects the ratio to sustain going ahead. It underscored India’s earnings cycle has seen a smart turnaround after almost a decade. "Nifty exited FY23 with 11 per cent earnings per share (EPS) growth on a high base of 34 per cent growth in FY22. Earnings though remained lopsided with BFSI driving almost the entire incremental earnings in FY23. With healthy macros, rangebound oil prices, robust fiscal balance sheet and moderating inflation, the market outlook is quite optimistic," said Motilal Oswal.
"For Nifty50, we are modelling 20 per cent YoY profit growth for FY24E. We forecast FY24 earnings growth to be driven by BFSI, oil and gas, metals and automobiles –that are likely to contribute 82 per cent to the incremental earnings of Nifty50," said Motilal Oswal.
In the past, the corporate profit to GDP ratio almost doubled to 5.1 per cent from 2.7 per cent over 2003–08, with Nifty500 profits reporting 30 per cent growth – at two times the pace of underlying GDP growth (CAGR of 14.5 per cent) during the same period. But during 2008–20, the distress in domestic corporate earnings led to a compression in the Nifty500 profit-to-GDP ratio to 2.3 per cent from 5.1 per cent earlier, Motilal Oswal said.
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Disclaimer: The views and recommendations given in this article are those of the brokerage firm. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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