Corporate Profit to GDP - All set again.

The role of corporate earnings in GDP is a critical barometer for measuring the future growth prospects of an economy which drives investments from the FII. India’s corporate earnings as a percentage of GDP have seen a significant rise over the past six years, reflecting a structural shift in the economy. From 6.9% of GDP in FY18 to 12.2% in FY24, corporate profitability has witnessed a robust increase of 538 basis points (bps). This surge has been primarily driven by key macroeconomic factors such as rising net investments, a decline in the current account deficit (CAD), and increasing dividend payouts.

1. Rise in Net Investments (35% Contribution)

The single biggest factor driving corporate earnings growth has been the increase in net investments as a share of GDP, which grew from 25.4% in FY18 to 27.3% in FY24. This 191 bps increase contributed 35% of the total earnings expansion. Higher investments in infrastructure, manufacturing, and technology have propelled corporate profitability, reflecting strong capital formation and business expansion.

2. Decline in Current Account Deficit (22% Contribution)

India’s current account deficit (CAD) as a percentage of GDP improved significantly, reducing from -1.8% in FY18 to -0.6% in FY24. This 119 bps shift accounted for 22% of the total rise in corporate earnings. A lower CAD implies a stronger external balance, reducing financial vulnerabilities and improving profitability for export-oriented firms.

3. Increase in Dividend Payouts (22% Contribution)

Corporate dividends as a percentage of GDP more than doubled, rising from 1.4% in FY18 to 2.6% in FY24—a 120 bps jump. This trend, contributing 22% of the earnings growth, reflects increasing shareholder rewards and a shift towards a more sustainable return-on-equity model.

4. Household Savings and Government Savings Impact

Household savings as a share of GDP saw a slight improvement, rising 87 bps from -19.3% in FY18 to -18.4% in FY24, contributing 16% to corporate earnings growth. Meanwhile, government savings increased modestly by 20 bps to 1.4% of GDP, adding 4% to the overall change.

 

 Corporate Profit-to-GDP Ratio: Historical Data and Trends:

• FY24’s 4.8–5.2% ratio (Nifty 500 and listed universe) marks a reversal, driven by improved net profit margins despite tepid revenue growth.

·        Earlier peaks include 3.2% in FY11 and a 10-year high of 2.63% in FY21, boosted by cost cuts and commodity gains during the pandemic.

FY21 (2020–21): 2.63–2.69% (10-year high, ), with Nifty 500 at ~4.1% Profits surged 57.6% YoY to ₹5.31 trillion amid cost cuts and commodity price drops, outpacing GDP contraction (-4.2% nominal).

FY22 (2021–22): 4.3–4.5% , with Nifty 500 at 4.5%. Profits grew 48% YoY, nominal GDP at 19.5%, led by BFSI, oil & gas, and metals.

FY23 (2022–23): 4.1–4.3% (Nifty 500 at 4.1%, listed universe 4.3%, ). Profits grew 8.7% YoY (slower than FY22’s 49%), lagging nominal GDP’s 16.1%, dragged by commodity price volatility.

FY24 (2023–24): 4.8–5.2% (15-year high). Nifty 500 at 4.8%, total listed at 5.2%, with 30% YoY profit growth (₹14.11 lakh crore) outpacing nominal GDP’s 9.6%, led by BFSI, oil & gas, and autos.

Now which sectors have contributed and will be contributing is an insight to delve from the above numbers.

Last 15 Years (FY10–FY24, 2009–10 to 2023–24)

a)      Overall Ratio Trend: From ~3.2% in FY10 to a low of 2.1% in FY20, then up to 4.8–5.2% in FY24

Last 10 Years (FY15–FY24, 2014–15 to 2023–24)-

a)      Overall Ratio Trend: From 4.1% (FY15) to 2.1% (FY20), then 4.8–5.2% (FY24).

Last 4 Years (FY21–FY24, 2020–21 to 2023–24)

a)      Overall Ratio Trend: From 2.63–4.1% (FY21) to 4.8–5.2% (FY24).

A synopsis of Historical Corporate Profit to GDP- Sector contributors

·        15 Years: BFSI (30–40%) and energy (15–25%) dominated, with industrials and IT fading post-FY15, contributing ~60–70% of profits.

·        10 Years: BFSI (35%) and energy (20%) led ~55%, with autos and industrials rising post-FY20.

·        4 Years: BFSI (40%), energy (25%), and autos (~10%) fueled ~75%, reflecting a concentrated recovery.

     MSME Role in  Corporate Profit to GDP Ratio

• 15 Years: MSMEs’ profit-to-GDP contribution fell from ~0.5% (FY10) to ~0.2% (FY20), then rose to ~0.7–1% (FY24), averaging ~10–15% of profits.
• 10 Years: From ~0.3–0.4% (FY15) to ~0.7–1% (FY24), with a low of ~0.2% (FY20), contributing ~10–20%.
• 4 Years: Grew from ~0.3–0.6% (FY21) to ~0.7–1% (FY24), ~15–20% of profits, peaking in FY24.
• Early Period (FY10–FY15): MSMEs likely contributed 10–15% to total corporate profits (₹4–5 lakh crore annually), with a profit-to-GDP impact of ~0.3–0.5%. BFSI and energy dominated (50–60%, per prior response), leaving smaller sectors like MSMEs (often unlisted) with a modest share.
• FY15–FY20: Declined to ~8–12% as ratio fell to 2.1% (FY20). MSME profits stagnated amid credit constraints (e.g., post-IL&FS crisis) and demand slowdown.
• FY21–FY24: Rebounded to 15–20% of profits (₹2–2.8 lakh crore in FY24), driven by post-COVID recovery, government schemes (e.g., ECLGS), and small-cap rallies (Nifty Smallcap 100 up 93% over FY23–24).

 

      Conclusion:

The surge in corporate earnings as a percentage of GDP reflects India’s evolving economic landscape. A mix of higher investments reduced CAD, and rising dividends has contributed significantly to corporate profitability. Going forward, continued policy support, robust capital expenditure, and a favourable macroeconomic environment could sustain this growth momentum, further strengthening India’s corporate earnings trajectory. FY-26 you will find consumption, banking, and IT to play a major role followed by Infrastructure since around Rs 16lakh cr ( approx) will be getting deployed.  Job creation and liquidity will play a big role in the MSME segment.MSMEs play a growing but secondary role in corporate profits compared to BFSI and energy, with their ~30% GDP share amplifying their economic impact beyond listed metrics. FY25’s slowdown suggests a dip, but the long-term potential remains with policy support.