Profit to GDP ratio surges: The corporate profit to GDP growth ratio for the Nifty 500 companies surged to 4.8 per cent in financial year 2023-24, marking a 15-year high. The strong annual improvement was primarily driven by the banking, financial services and insurance (BFSI), oil & gas, and automobile sectors, which together contributed 95 per cent of the total enhancement. However, the metals, technology, and chemicals sectors had a negative impact.

The 0.8 per cent annual improvement in Nifty 500’s profit-to-GDP ratio in 2024 was propelled by gains in the BFSI, oil & gas and automobile sectors.

Overall, corporate profits for the Nifty 500 companies grew at a pace of 30 per cent year-on-year (YoY) in FY24, following a moderate growth of 9.3 per cent in FY23 and a remarkable 52 per cent in FY22.

Notably, the nominal GDP grew by 9.6 per cent YoY in FY24, which was slower than the corporate profit growth, and by 14.2 per cent YoY in FY23 compared to 18.9 per cent in FY22, brokerage firm Motilal Oswal said.

India's corporate profit (for both listed and unlisted companies) to GDP ratio saw a substantial decline, dropping to 1.9 per cent from 7.9 per cent over the period from 2008 to 2020. Specifically, for the Nifty-500 Universe, the ratio contracted to a two-decade low of 2.1 per cent from 5.2 per cent during the same period. This downward trend had been ongoing since 2010, with the exception of 2017 when profits in global cyclicals, such as metals and oil & gas, rebounded, and the losses of PSU banks decreased from the previous year, the Mumbai-based brokerage noted.

PSU profits surge

A detailed analysis of corporate profit to GDP distribution over the past two decades across three categories—PSU Corporate, MNCs, and Private Corporate—reveals interesting trends. The profit to GDP ratio for PSU corporates decreased to 0.5 per cent in 2020 from 2.1 per cent in 2008, due to value migration from public to private sectors like banking, telecom, and airlines. Nevertheless, this sector recovered to 1.8 per cent in 2024. The private corporate sector’s profit-to-GDP ratio improved to 2.8 per cent in 2008 from 0.8 per cent in 2003 but then contracted to 1.4 per cent in 2020 before rebounding to 2.7 per cent in 2024.

Indian PSUs have staged a remarkable comeback, with a sharp five times increase in profits, soaring to Rs 5.2 lakh crore from Rs 1 lakh crore over FY20-24. More than 36 per cent of these incremental profits came from PSU banks alone. In FY24, the profits of PSU banks exceeded Rs 1.5 lakh crore, surpassing the milestone of Rs 1 lakh crore hit in FY23.

Will corporate profit growth sustain?

The outlook for sustaining the corporate profit-to-GDP growth ratio appears promising. India is currently enjoying a favourable economic environment, with excellent macroeconomic indicators such as an 8.2 per cent real GDP growth in FY24, inflation at around 5 per cent, and both current account and fiscal deficits within manageable limits, Motilal Oswal said.

The currency remains stable, and corporate earnings are healthy, with the Nifty ending FY24 with a 24 per cent EPS growth. A compound annual growth rate (CAGR) of approximately 15 per cent is expected over FY24-26, the brokerage said.

For the Nifty-50, a projected YoY profit growth of around 13 per cent is anticipated for FY25. The earnings growth for FY25 is expected to be driven by the BFSI, Oil & Gas, Metals, and Technology sectors, which are likely to contribute 75 per cent to the incremental earnings of Nifty-50.

Overall, the robust performance in FY24 and the positive outlook for the future reflects the resilience and potential of India's corporate sector, Motilal Oswal added.

Corporate profit to GDP ratio hits 15-year high in FY24: here's the way ahead

The 0.8 per cent annual improvement in Nifty-500’s profit-to-GDP ratio in 2024 was propelled by gains in the BFSI, oil & gas and automobile sectors.

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