New Delhi: The corporate profit to Gross Domestic Product (GDP) ratio rebounded to a decade high of 4.3 per cent and 4.5 per cent for the Nifty-500 universe and listed India companies, respectively, brokerage house Motilal Oswal Financial Services said in a report.
The recovery was driven by the expansion in the economy, after a Covid-led contraction in 2021, while corporate profit rose at a faster rate of 48 per cent year-on-year for the Nifty 500 companies. "The growth in profit, however, was hardly broad-based and driven only by three sectors: BFSI, oil and gas (O&G), and metals. More than half of the incremental growth was steered by BFSI, underpinned by a modest revival in credit growth and improvement in asset quality trends," it said.
Notably, India's corporate profit, listed and unlisted companies combined, to GDP ratio fell to 2.2 per cent from 7.8 per cent during 2008-20 period, the report said.
On the outlook, the brokerage expects the improvement in corporate profit to GDP to sustain going ahead.
"India's earnings cycle has seen a turnaround after almost a decade; the current adverse macroeconomic backdrop with heightened worries on rising interest rates, elevated crude oil prices and liquidity tightening has kept the market volatile and jittery. Meanwhile, the domestic earnings continue to remain healthy and provide a silver lining, notwithstanding the challenges faced on multiple fronts."
After 15 per cent and 35 per cent growth in earnings per share in Nifty in financial year FY21 and FY22, respectively, it is expected to grow at 18 per cent in FY23.
Though the risks to earnings are tilted towards downside, the brokerage house, however, expects the profit to GDP ratio to improve both in the short as well as medium term.