India’s fast growing GDP needs corporate sector sales to grow by 10%

An increase in corporate sector sales could possibly be the boost India needs to achieve a faster growth rate or stay on track with its GDP performance, Care Ratings analysts said in a report dated October 20.

“…corporate sales should be growing at above 10% in case GDP growth is to be in the 7-8% range and exceed 15% for 8% plus growth,” Care Rating analysts, Madan Sabnavis and Anushka Sawarkar said.

After testing the correlation between GDP, net profit of companies and net sales, with the help of R-square tests, the analysts saw a strong positive correlation between net sales and GDP.

The analysts collected data on the net sales and net profits of 3,220 companies and calculated the growth rate of the country for the same for 30 quarters on y-o-y basis.

World Bank has predicted India’s gross domestic product (GDP) rate to grow at 7.6% and 7.7% for FY17 and 18 respectively.

With many companies getting ready to post their second quarter (Q2 FY17) results, the report said that India Inc may perform better this time which could be the start of a serious turnaround in the state of the economy.

“There is definitely a good relation between growth in corporate sales and growth in GDP to the extent that the former can be treated as being a leading indicator of the economy. As it is revealed every quarter and precedes the announcement of the GDP growth numbers, it is possible to extrapolate the same at the economy level on a continuous basis,” the analysts said.