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India’s largest companies marginally increased their contribution to the economic output during the first half of the fiscal year even as the profits of India Inc. contracted due to input cost pressures, according to a Mint analysis.

The combined net profit of the top 50 firms was 2.3% of India’s gross domestic product (GDP) in April-September, up from 2.2% in the preceding six months.Corporate profit as a share of GDP is a metric used to assess the contribution of listed firms to India’s economic output, for which the data was released on Wednesday.

Though the top 50 companies held ground, the overall picture was dismal as profit of listed companies fell to 3% of GDP, against 3.5% a year ago, according to the analysis which included 2,632 companies.

The ratio is just marginally above the long-term average of 2.9% since 2009-10.

The fall was primarily due to the muted economic growth of 0.8% in H1FY23 (in nominal terms) and a 9% contraction in corporate profits, sequentially.

The top 50 firms accounted for three-fourths of the net profit of the sample.

“From an overall perspective, H1 FY23 numbers are not looking great. A lot of burden is perhaps coming from weakness in Q2," Dhiraj Nim, economist, ANZ Research, said.

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However, the signs of easing cost pressures will bring some relief to the corporate sector. “For India, as a net importer of oil, lower crude prices are a positive sign and are expected to reflect on inflation. This will have a positive impact on the profitability of companies if inflation is on the lower side," Srikanth Subramanian, chief executive, Kotak Cherry, said.

If central banks slow down the pace of rate hikes it will help reduce interest costs for the companies.

“However, one must acknowledge that macro risks on the global front are still quite high and may impact the growth of companies’ profitability," Subramanian said.

The profit share of the top 50 firms to GDP was 1.7% in April-September 2020, and has risen markedly since then, which Nim attributed to a shift in market share from informal to the formal sector during covid.

ABOUT THE AUTHOR

Niti Kiran

Niti Kiran is a data journalist who really likes data. With over 10 years of experience in corporate and market research, she has an eye for detail. Data research is Niti's forte and constantly fascinates her.
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