“Over 2013-2018, profit CAGR of 3.8 per cent has significantly lagged GDP CAGR of 11 per cent,” says Motilal Oswal. CAGR is compounded annual growth rate. Barring 2017, the share of profits in GDP has been consistently falling.
Rebound in profits in global cyclicals such as metals and oil and gas companies coupled with fall in losses at state-owned banks had led to an uptick in the corporate profit-to-GDP ratio in 2017, says the brokerage.
Analysts at Motilal Oswal Securities, led by Gautam Duggad, believe similar to 2013, the corporate profit-to-GDP ratio could have hit a trough.
“We now believe that India’s earnings growth has bottomed out and that the corporate profit to GDP ratio should expand hereon. Our confidence stems from the bottoming out of the asset quality cycle in state-owned and private corporate banks and some initial signs of green-shoots in private corporate capex. Consumption, too, remains robust,” they say.