Corporate profit to GDP ratio hits Ten-year peak in FY2022

MUMBAI: According to Motilal Oswal Financial Services, India's corporate profit to GDP ratio recovered to a decade high of 4.3% in FY2022. The denominator (GDP), which contracted in 2021 as a result of lockdowns caused by Covid, expanded by 19.5% Yar-on-Year in FY22, leading the brokerage to think that the ratio was driven by the economy's expansion. However, corporate profit increased at a quicker pace of 48% year over year (for the Nifty500 Universe). In the case of the Nifty500, the corporate profit-to-GDP ratio was 4.5%.

However, data showed that only three industries viz. BFSI, oil and gas, and metals, were responsible for the majority of the profit growth. Consumer, insurance, logistics, consumer durables, infrastructure, and media were the only sectors to see a decline in the profit-to-GDP ratio, according to Motilal Oswal Financial Services. "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," the company added.

notwithstanding the challenges  encountered on numerous fronts, Motilal Oswal Financial Services stated that domestic profits "continue to stay solid and present a silver lining." We are factoring in 18% growth for FY23 after Nifty EPS increased by 15% and 35% in FY21 and FY22, respectively. Although there are downside risks to earnings, we still anticipate an improvement in the profit to GDP ratio over the short- and medium-term, the brokerage said.

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