Have corporate profits bottomed out - Chart Of The Day 5 November 2014 - Equitymaster

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Have corporate profits bottomed out
Nov 5, 2014

Talking about trends, corporate profit to GDP is a very good indicator of the productivity of an economy. Besides a healthy corporate profit to GDP ratio also indicates that the GDP growth is sustainable. If and when, India's manufacturing Megatrend takes off, this is one indicator investors can certainly watch out for. As the chart shows, low investments in manufacturing constantly brought down India's corporate profits to GDP ratio since FY10. In FY14, the ratio was at a decade low (4.2%)! Any improvement in the ease of doing business in India can therefore mean a huge upside for this ratio. And while it may take a while for the ratio to go back to FY08 levels, manufacturing led corporate profits are bound to be sustainable too.

As Indian companies build capacities for growth, interest and depreciation costs may cap profitability temporarily. However, investments in the best companies at good valuations, at this phase can yield very rich dividends later.

Data Source: Telegraph India

This Chart Of The Day was published in The 5 Minute WrapUp - Watch out for this India vs. China Megatrend

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