Profit-to-GDP ratio at 17-year high as midcap, smallcap contribution rises 

India's corporate profit-to-GDP ratio for the Nifty-500 universe stood at a 17-year high of 4.7 per cent in FY25, driven by a healthy 10.5 per cent YoY profit growth in FY25, building on a strong earnings base of 30 per cent YoY in FY24, MOFSL said in its latest strategy note. This broadly aligned with the year’s revenue growth. 

For listed India Inc, the ratio stood at 5.1 per cent, at a 14-year high. The performance was bolstered by a robust GDP growth of 9.8 per cent YoY in FY25, following a high base of 12 per cent YoY growth in FY24, the domestic brokerage said.

MOFSL noted that the Nifty-500 ratio was driven higher by midcaps and smallcaps, while largecaps offset the gains. The midcap and smallcap ratios grew to 0.81 per cent and 0.42 per cent, respectively, in FY25 (from 0.75 per cent and 0.41 per cent in FY24). 

"Large-caps witnessed a dip to 3.51 per cent, down marginally from the 16-year high of 3.55 per cent recorded in FY24. The mid- and small-cap shares have experienced a nearly continuous increase in the corporate profit-to-GDP ratio since the lows of 2020, rising 6.2x and 1.6x, respectively. This marks a reversal from the period between 2008 and 2020, during which mid-caps faced a significant decline, while small-caps exhibited
range-bound performance," MOFSL said. 

The domestic brokerage said largecap stocks have also posted substantial gains since the 2020 lows, more than doubling in value, in contrast to their earlier trend of sustained weakness from the highs of 2008 through 2020. 

On sectoral basis, the top-5 sectors contributed 71 per centto the aforesaid ratio, with BFSI (1.84 per cent of the GDP), Oil & Gas (0.51 per cent), Technology (0.40 per cent), Metals (0.34 per cent), and Automobiles (0.32 per cent) being the key contributors. In contrast, e-commerce was the only sector that contributed adversely to the corporate profit-to-GDP ratio, MOFSL said.

To be sure, India’s nominal GDP grew 10.8 per cent YoY in 4QFY25, marking the highest growth in four quarters. This resulted in an overall growth of 9.8 per cent for FY25. This healthy performance reflects the strengthening domestic macroeconomic conditions, which are likely to sustain and support corporate earnings going forward, MOFSL said.

"Although corporate profit growth moderated in FY25 due to a high base set in FY24 and other factors mentioned earlier, we expect a gradual recovery going ahead. This rebound is likely to be driven by increased government spending compared to FY25, a favorable monsoon season, and coordinated policy measures by the government and the RBI, including tax incentives and an accommodative monetary policy that should help stimulate consumer spending," it said.

Consequently, MOFSL expects corporate earnings to outpace GDP growth, with Nifty earnings forecasted to grow 12 per cent and 15 per cent YoY in FY26E and FY27E, respectively. This growth is anticipated alongside a nominal GDP growth rate of 10.8 per cent YoY in FY26, which will further enhance the corporate profit-to-GDP ratio in the coming years, MOFSL said.