India’s strong GDP growth underpins medium-term corporate earnings growth: Axis Capital
ADVERTISEMENT
India has changed its course on corporate profitability over the past few years, with companies now capturing a larger share of economic output, a recent Axis Capital report said. After nearly a decade of profits lagging overall economic growth, the balance has shifted in favour of corporates, altering the medium-term earnings outlook.
According to the report, an important accounting identity is that GDP equals wages plus profits. Thus, while economic growth and corporate earnings growth are generally not fully aligned in a year, there is an alignment over the medium term, as profit-to-GDP ratios are generally within a range.
“Over 2013-25, global corporate earnings grew 2 pp-faster-than-global nominal GDP in the US and Japan, but were slower than GDP in EMs like India, China, and South Korea. With 7% real growth and 3-4% inflation, the base growth on which the over/under for credit is likely to occur, is thus the highest globally,” the report said.
India’s experience reflects this divergence clearly, as, during FY11–20, the Indian economy expanded rapidly, with nominal GDP growing at around 12% annually. On the other hand, corporate earnings showcased a weaker growth, wit Nifty EPS growing by only about 7% per year.
This reversed sharply in FY20-24. The outperformance of earnings over nominal GDP slowed in the past two years, but the EPS is expected to be higher in the next few years. The report suggested that as the country continues to have a large labour surplus, which reduced the bargaining power of the workers, end up favouring the corporates, thereby increasing profits. “Even for the overall economy, as a labour surplus reduces bargaining power of workers, the split of GDP is likely to keep swinging towards profit.”
January 2026
Netflix, which has been in India for a decade, has successfully struck a balance between high-class premium content and pricing that attracts a range of customers. Find out how the U.S. streaming giant evolved in India, plus an exclusive interview with CEO Ted Sarandos. Also read about the Best Investments for 2026, and how rising growth and easing inflation will come in handy for finance minister Nirmala Sitharaman as she prepares Budget 2026.
Corporate profit-to-GDP has moved up from the bottom of 3.5% in FY15 to 5.1% in FY25, and is projected to rise to 5.5% by FY28E.
The report attributed the pickup in growth over FY21-25 to significant improvement in domestic sectors like telecom, industrials, discretionary (including auto), and financials. However, globally exposed sectors like IT services and metals saw weaker growth compared to FY13-21.