India Inc's profit-to-GDP ratio soars to 15-year-high in FY24, shows data

Financials, energy and automobile companies account for most growth in incremental profits

India Inc’s profit as a percentage of gross domestic product (GDP) has risen to a 15-year high led by improvement in the bottom line of financials, energy and automobile companies.

The profit-to-GDP ratio for Nifty 500 companies rose to 4.8 per cent in 2023-24 (FY24), up from 4 per cent at the end of preceding financial year FY23, according to an analysis done by Motilal Oswal.

The ratio for the entire listed universe stood at 5.2 per cent.

Financial, energy (oil & gas) and automobile companies accounted for 95 per cent incremental growth in profit in FY24, as per the brokerage.

The corporate profit for the Nifty-500 universe grew at a faster pace of 30 per cent-year-on-year (Y-o-Y) in FY24, after moderating to 9.3 per cent Y-o-Y in FY23. It was 52 per cent Y-0-Y in FY22.

India Inc’s FY24 profit pool also got a boost as growth momentum remained strong during the last quarter of the fiscal year.

In Q4FY24, the Y-o-Y earnings growth for top 200 firms was over 20 per cent, around 500 basis points ahead of consensus estimates.

“The Y-o-Y growth was strong for financials, autos, real estate, capital goods and healthcare. The Y-o-Y growth was weak for commodities, particularly for metals and chemicals and consumer staples. The growth was modest in high single-digits for IT services,” Nomura said in a note last week.
 

The earnings upgrades were prominent for autos, power, oil/gas and industrials, while IT Services, FMCG and chemicals continued to record cuts in consensus estimates, the note added.

Experts believe the profit-to-GDP ratio could improve further this financial year.

“In FY 24, credit growth was at 16 per cent, and the quality of assets was the best in a decade. When the quality of assets improves, the need for provisions goes down, boosting profits, which improves the financial sector's contribution to the overall profit to GDP. Overall, the profit to GDP will improve because the profitability of the IT sector will improve in this fiscal year, while the financial and automobile sectors will remain robust. Telecom profits will improve because of tariff hikes. Cement sector will revive in the second half. Moreover, the economy is expected to grow at above 7 per cent, and monsoons are likely to be normal,” said Chokkalingam. G, Founder of Equinomics.

In FY24, the nominal GDP grew 9.6 per cent Y-o-Y, slower than the corporate profit growth.

Over the past decade, India Inc’s profitability grew at a rate lower than the nominal GDP growth, which also compressed the ratio. However, in recent years, corporate profits growth has managed to surpass the GDP growth rates. This was largely on account of an improvement in net profit margin even as revenue growth remained tepid.

Between FY11 and FY20, the corporate profit-to-GDP ratio has been contracting, with the exception of FY17. During Covid-hit FY20, the ratio had dropped to a two-decade low of 2.1 per cent.

The ratio had improved in FY17 with profits of global cyclicals (such as metals and energy) had bounced back and losses of state-owned banks had reduced over the preceding year.

Since FY21, profit-to-GDP has largely been upward trending, barring a small dip in FY22 amid a decline in the profit pool of metal companies amid softness in global commodity prices.