Earnings of India's top 500 firms growing faster than US peers'

Profits of India’s top listed companies have been growing at a faster pace than those of their American peers, but when it comes to revenue growth, the order has reversed recently.

The combined net profit of the S&P 500 companies was up 14.1 per cent year-on-year (Y-o-Y) during the trailing 12 months (TTM) ended December 2023, as against 17.4 per cent profit growth logged by the BSE 500 companies in the same period.

This is the second consecutive year of faster profit growth for the BSE 500 companies.

The S&P 500 companies’ combined net profit grew to $1,782.3 billion during the 12 months ended December 2023 from $1,561.5 billion a year ago, according to the Bloomberg data.

In the same period, the combined net profit of India’s top companies that are part of the BSE 500 index grew to $142.4 billion from $121.3 billion a year ago, an increase of 17.4 per cent.

In contrast, the combined revenue of the S&P 500 companies grew 6.2 per cent Y-o-Y on a TTM basis, as against the 4.6 per cent revenue growth posted by the BSE 500 companies in US dollar terms in this period.

In the previous two years, the combined revenue of the BSE 500 firms had grown faster than their US peers, thus indicating a reversal in trend in CY2023.

The combined revenue of the S&P 500 companies grew to $16,813.4 billion during the 12 months ended December 2023 from $15,835 billion a year ago.

In the same period, the combined revenue of the BSE500 firms increased to $1,525.6 billion from $1,458.1 billion a year ago.

The analysis is based on quarterly revenues and profits of companies that are part of the S&P 500 and BSE 500 indices.

Indian companies’ numbers have been converted into US dollars using the average rupee-dollar exchange rate in the respective quarter.

The last four quarters’ numbers were added to get the trailing 12-month numbers.

The numbers, however, also suggest that a typical company in the world’s biggest economy is more profitable compared to its peers in India.

The S&P 500 companies reported a net profit margin of 10.6 per cent (as a percentage of revenues) on average during the year ended December 2023 compared to the BSE 500 companies’ average net profit margin of 9.3 per cent during the same period.

This is the fourth consecutive year, at least, when US companies have clocked higher profitability than India’s top companies.

However, the margin expansion in India from a post-pandemic low has been faster than in the US.

The net profit margin for the BSE 500 companies has increased by 410 basis points from a low of 5.2 per cent during the trailing 12 months ended December 2020.

In the same period, the S&P 500 companies’ net profit margin increased by 330 basis points from 7.3 per cent during the year ended December 2020.

Analysts attributed the faster revenue growth in the S&P 500 companies to stronger consumer demand in the US.

“The consumer demand and the aggregate demand in the US have been highly resilient and growing at 6-7 per cent, underpinned by a strong labour market and a steady rise in wages and salaries,” said Dhananjay Sinha, co-head of equities and head of Research of Strategy and Economics at Systematix Institutional Equity.

While the consumer demand in the US has been above the pre-Covid trend growth, in India it has been lower than in the pre-Covid period, he said.

A relatively weak consumer demand in India has adversely affected the revenue growth for firms in the consumer goods space.

This has adversely affected the overall aggregate demand in the economy as private final consumption expenditure accounts for nearly 60 per cent of India’s gross domestic product (GDP).

The growth dichotomy in the two economies also show in their nominal GDP growth in constant currency.

India’s GDP at current prices, when converted to US dollar, grew 4.3 per cent Y-o-Y during the year ending December 2023.

In the same period, US’ nominal GDP was up 5.9 per cent Y-o-Y.

A faster growth in nominal GDP usually translates into higher aggregate demand and a faster growth in corporate revenues.

Others attributed the slower growth in corporate revenues in India to the adverse impact of rupee depreciation and a slowdown in key sectors.

“A part of revenue growth for Indian companies was eaten up by rupee depreciation.

"Besides, we have seen a sharp slowdown in revenue growth in sectors such as FMCG, IT services, tractors, and commercial vehicles that are a big part of the listed universe in India,” said G Chokkalingam, founder & CEO of Equinomics Research.