Indian economy has seen many reasonably good years in the recent past till March 2011, with real GDP growing between 7% to 9% pa. Given that Indian inflation has been just below double digits for five years, the nominal GDP growth has been spectacular in the five year period ending March 2011.
However, somehow Indian corporate sector has not been able to participate & benefit fully from this GDP growth in the last five years, as shown in the chart below.
In the five year period 2006-11, India’s nominal GDP grew a solid 80%+. However, the profits of per share large corporates, that is constituents of BSE Sensex, increased by 40% during the same period. The dominant weights in the Sensex being commodities (linked to global growth cycle rather than domestic), IT services (a leverage on US and European growth and IT spend) and banks (which have faced rising NPA’s post the lending boom of 2003-07), it is no surprise that its earnings growth has underperformed the nominal GDP growth. We don’t foresee this to change over the next two years to come.