As per the study, the aggregate trailing 12-month corporate profits (excluding loss makers) of the top 1,000 companies stood at Rs 11.3 lakh crore so far during Q4FY22 compared with Rs 8.1 lakh crore in FY21. Industrials accounted for almost half (46 per cent) of the aggregate profit pool at Rs 5.2 lakh crore, which is the highest share in the past decade. The highest profit share of industrials on a TTM basis stood at 57 per cent between FY05 and FY06, the brokerage said.
Financials, on the other hand, are back to contributing more than a quarter of the profit pool after emerging from the NPA cycle which began in 2016, the brokerage said.
This trend of rising share of industrials and financials in the corporate profit pool is a positive sign for the nascent investment and credit cycles, ICICI Securities said. That said, it noted that the commodity price-led expansion in profit base of industrials will recede as commodity prices show signs of stagnation.
Meanwhile, the aggregate profit pool share of ‘consumption, IT and pharma’ together has dropped to a two-decade low of 27 per cent at Rs 3.1 lakh crore.
On the valuation front, trailing P/E of industrials and financials are still at reasonable levels compared to historical average while it is high for the ‘consumption, services and healthcare’ group, the brokerage said.
Aggregate market capitalisation of the profitable companies within the top 1,000 stocks is Rs 235 lakh crore, which implies a trailing P/E ratio of 20.9 times.
“Industrials plus financials which constitute 73 per cent of the aggregate profit pool are reasonably valued at a trailing P/E of 15-16 times compared with historical levels while the remaining 27 per cent of the profit pool (services, consumption and healthcare) is still at a high trailing P/E of 33 times,” The brokerage said.
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