Chennai: Due to a multitude of factors, India’s corporate profit to GDP ratio dropped from 7.8 per cent to just three per cent over 2008-18 period, a report has said.
According to a Motilal Oswal report, for the Nifty-500 universe, the ratio has declined from 5.5 per cent to 2.8 per cent — a 15-year low — over the same period.
Earnings have lacked resilience over the last decade due to a multitude of macro-micro factors, the report noted.
The report stated that evidence suggests that the corporate profit to GDP ratio doubled from 2.8 per cent to 5.5 per cent between 2003-08, with Nifty-500 profits growing at a substantial 31 per cent, two-times the pace of underlying GDP growth (CAGR of 14.5 per cent).
This surge was driven by the export-investment and capex-oriented sectors. Over 2003-08, the global economy was growing at a faster clip, helping the export-oriented players. Capacity investment across sectors was also significant as investment cycles took off, it stated.
The challenge however, the report states is that the corporate earnings distress in India has translated to the corrosion of the Nifty-500 profit/GDP ratio from 5.5 per cent to 2.8 per cent.
The sectors that have been most stable and rising to prominence over these 15 years are technology, NBFCs, private financials, auto and metals. The profits of these sectors as a percentage of GDP have increased by three to four times over 2003-18, the report said.
The report expects the corporate profit to GDP trend to improve from FY19 onward. It states that corporate banks, both PSU and private, which were the biggest contributors to the downtrend are expected to drive the expansion as asset quality bottoms, fresh slippage generation moderates, provisioning cost normalizes and loan growth recovers.
Motilal Oswal expects sectors like consumer, auto and private banks (especially retail) to stay stable as far as their contribution as a percentage of GDP is concerned.
In the earlier upcycle of 2003-08, sectors like infrastructure, cement, capital goods and construction evolved, even as investments, as a proportion of the GDP, shot up, the report stated and added that a few sectors that were not listed a decade back are now listed and growing well.