Role Of The Unlisted Corporate Sector In India’s Economy: Motilal Oswal

Motilal Oswal Report

India’s equity market is at an all-time high. Although real gross domestic product growth has also surprised on the upside for the last three consecutive quarters, ongoing discussions persist regarding the perceived disparity between the equity market and the real economy.

However, in this note, we reiterate that, upon closer inspection, there appears to be no disconnect between the two. The equity market reflects the financial position of the listed corporate sector, while the real economy is a reflection of a wider canvas. In order to further support our arguments, we discuss the role of listed, and thus, unlisted corporate sector, in India’s economy.

It is widely known that the profits of listed corporate sector more than doubled from less than 2% of GDP in FY20 to ~4.5% of GDP in the past two years (FY22-FY23). But what is India’s aggregate corporate profit and more importantly, how has it moved over the past decade? We answer this question and many more in this note. Not only do we share our estimates of aggregate corporate profits in India, and thus, the share of the unlisted corporate sector, we also present our estimates of the role of the unlisted corporate sector in India’s gross value addition, national debt, profit before taxes, corporate income taxes paid, and total investments/capex (called gross capital formation).

Since we have aggregate data on corporate GVA, corporate debt, profits (our estimates on PAT and official data on PBT), corporate income taxes paid and corporate investments, one can find out the share of the unlisted corporate sector by deducting the share of listed companies from the aggregate corporate data.

Overall, our conclusion is very simple. The unlisted corporate sector is much bigger than the listed sector in India in most of these parameters. What is more interesting is that while the financial position of listed sector has improved markedly in the post- Covid period (FY20-FY23), this is clearly not the case for the aggregate corporate sector. It means that the financial position of the unlisted corporate sector has weakened in the post- Covid period.

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