‘Number of loss making companies at record low due to strong economic growth’

The surge in profitability on the back of cost cuts, higher efficiency and the demand rush post-COVID has reduced the number of loss-making firms in India to near record low.

The extraordinary decline in loss-making companies is a result of broad easing of financial conditions, high fiscal deficit-led government spending and stable external situation for India coupled with resilient economic growth in India, DSP Mutual Fund said in a research.

These factors rarely align as they have in the past three years. If they continue to remain aligned, the long-term trend of higher corporate profitability will remain strong, the research said.

Nearly one in five firms has delivered multi-bagger earnings growth. This means their earnings have doubled or more during this period. This is a healthy pace of growth where earnings CAGR exceeds 19 per cent, the report said.

Every fourth firm has outperformed the NSE500 Index earnings growth CAGR of 18 per cent and nearly one in three has outperformed Nifty earnings growth of 16 per cent. These are remarkably strong numbers which showcase why India has delivered such a superior performance across market capitalisation. However, these numbers have begun to slow. The consensus growth for FY25 is likely to be below 15 per cent and can derail the strong bull market of the last four years, DSP Mutual Fund said.

Over the last 4 years, BSE 500 Index PAT growth has been higher than nominal GDP growth. This outperformance of profit growth is a feature of bull markets. With nominal GDP slowing, sales growth for BSE 500 slowing and margins beginning to peak and contract, this trend is likely to normalise and pressurise stock prices in FY25, DSP Mutual Fund said.