100s of titles, one news app for just $10 a month.
Dive Deeper:
SBI bets on corporate credit pick up to drive growth in FY23
Corporates are already utilizing a larger portion of their working capital limits sanctioned by the bank, at 56% now, with…
Tata Motors’ shares ride high on Q4 margin surprise
This comes on the back of better-than-expected margin performance in its fourth quarter results (Q4FY22).
Rakesh Jhunjhunwala portfolio: Brokerage sees over 30% upside on this banking stock
Given inexpensive valuation, the brokerage has recommended Buy on Canara Bank shares
Rakesh Jhunjhunwala held this public sector bank is a hot pick on markets post Q4 earnings
For the full year FY22, net profit climbed to ₹5,678.42 crore more than doubled from ₹2,557.58 crore in FY21. Net…
One subscription that gives you access to news from hundreds of sites
Prudent information about the Prudent Corporate Advisory Services IPO
Key points to keep in mind before applying for Prudent Corporate Advisory Services IPO.
Consumer durable products to get costlier ahead as rupee plays spoilsport
The Consumer Electronics and Appliances Manufacturers Association (CEAMA) believes that the fall of the Indian rupee against the dollar is…
Get all your news in one place
Latest National news:
Floriade to return to Canberra after two years
The festival will begin in September and run through to October.
Read news from The Economist, FT, Bloomberg and more, with one subscription
Learn More
Stoking fear and hatred held the Coalition in power – finally Australia had enough
For the first time in a decade the logjam to change the country’s politics may be shifting
How do you know when someone is growing large quantities of cannabis?
How do you know when a shed or property is being used to grow large quantities of cannabis?
Labor increasingly likely to form majority government as Liberals descend into turmoil
Anthony Albanese and his senior leadership and economics team will be sworn in on Monday as PM-elect declares he wants…
Michael McCormack suggests Barnaby Joyce’s unpopularity in inner-city contributed to Coalition’s loss
Former Nationals leader says he was ‘very popular’ in inner city and that mixed messages on net zero emissions ‘didn’t…
From analysis to good news, read the world’s best news in one place
How Albanese’s practical pivot on climate paved the way for a Greens surge
Analysis: As Labor focused on opportunities for working people in the transition to renewables, the Greens mounted a formidable on-the-ground…
Informer: Morrison bulldozed in the wrong direction, happy news for Biloela family
Confessing to a bad habit of "bulldozing" at the eleventh hour, and promising to change his ways, was not enough…

Compensation of employees to GDP ratio of private firms well poised; These stocks are ICICI Securities top picks

By Livemint
The  COE to GDP ratio for the private sector grew rapidly to 12.4% in FY21 from 9.2% in FY12 (nominal COE in the private sector was at Rs24.5 trillion in FY21). (Photo: Mint)

The aggregate private corporate spending on ‘compensation of employees’ (COE) continues to rise ahead of nominal GDP growth due to increasing formalisation of the economy, said ICICI Securities research note authored by analysts Vinod Karki and Niraj Karnani.

Data by the national accounts statistics showed that the COE to GDP ratio for the private sector grew rapidly to 12.4% in FY21 from 9.2% in FY12 (nominal COE in the private sector was at Rs24.5 trillion in FY21). Public sector, which includes government and PSUs, have held a run-rate of 12-13% of GDP spent on COE over the past decade - particularly robust in FY20-FY21, where the private and household sector was under pressure as covid impacted economic activities.

Further, ICICI Securities note pointed out that listed private corporates show similar growth trends with the aggregate COE reaching 9.4 trillion on TTM basis (CAGR of 10.9% vs 9.5% for nominal GDP over FY12-FY21). Including PSU stocks, the aggregate compensation of employees (COE) for listed corporate sector on TTM basis stood at Rs12.1trillion.

Citing the national accounts data, the research note revealed that the major share of spend on COE within private corporates emanates from the category ‘real estate, ownership of dwelling and professional services’ at 40%, which should largely be IT services, followed by manufacturing at 22%, other services 10%, ‘trade, repairs and hotels’ 9% and financial services 7%. It added, "listed space private corporates show a similar trend with IT and manufacturing having the maximum share of COE."

"Long-term sectoral growth in aggregate COE in private sector over FY12-FY21 is driven by ‘IT & other services’, agriculture, financial services and communications while the drag on growth came from construction, ‘trade, repair, hotels and restaurants’ and manufacturing," the note said.

Also, the research note highlighted that a quarterly run-rate of adding 1 million net new subscribers in CY17, EPFO net new subscriber addition has jumped 4x and reached a quarterly add of around 4 million in CY22 so far. Income tax collection has also significantly outpaced nominal GDP growth since FY01 at a

CAGR of 15.3% (Income tax collection of 6.4 trillion in FY22 till 16th Mar’22). Number of individuals filing returns with salary income has risen from 11.8mn in FY12 to 29 million in FY18.

Moreover, ICICI Securities note further added that the number of individuals with salary income filing returns has been rising and their average reported salary income works out to 0.7 million per year in FY18 compared to the per capita income of 0.13 million per year for the same year. Basis FY21 data from listed corporates, the reported average cost per employee works out to Rs0.9 million and the overall strength of the listed corporate sector based on available data is around 7.6 million employees in FY21.

However, aggregate compensation of employees (COE) in the unorganised sector (households) underperforms nominal GDP growth. As per the note, COE in the informal segment (households) underperformed with its share of GDP dropping from 8.8% in FY12 to 7.2% in FY21 exacerbated by the impact of covid on contact intensive segments of the economy.

As per the ICICI Securities analysts, the trend of rising aggregate compensation of employees (COE) to GDP ratio of the private sector (12.4% in FY21)

appears structural as formalisation increases. In the US, private sector COE/GDP ratio is above 40% while the government COE / GDP ratio is around 10%. Near term trajectory appears positive going into FY23, with annual salary surveys by various agencies indicating salary increase of around 9% for India Inc along with reports of robust hiring in the formal segment.

They added, new formal job creation should improve given the additional tailwinds of reopening post covid restrictions in contact-intensive sectors, pick-up in real estate construction activities, infrastructure development, manufacturing driven by export demand and PLI, high demand for IT and digital service professionals and the natural progression of formalisation seen over the past decade.

"Faster than nominal GDP expansion of COE for the private corporate sector indicates clear sign of formalisation of the economy and improving productivity which, along with the significantly high per capita income of this segment, is positive for the gross savings rate and discretionary consumption within this segment,' the duo added.

However, ICICI Securities analysts also note that t the formal sector’s contribution to the overall workforce is significantly low at 11% or 58.9mn workers and, despite its fast expansion, the informal segment in the economy has the lion’s share at 89%. Low income profile of the informal workforce is a challenge for aggregate demand, especially in an environment of rising inflation.

Following are the top picks of ICICI Securities from the perspective of channelising savings, credit demand and discretionary consumption from the growth in formal sector employment:

Savings & credit growth - SBI, Axis Bank, HDFC Bank, Aditya Birla Capital, SBI Life, SBI Cards and Payments Services.

Leisure & lifestyle- Indian Hotels, Trent, Sapphire Foods, Inox Leisure.

Real estate, building material & appliances - Phoenix Mills, Brigade enterprises, Havells, Green Panel Industries.

Auto - Maruti, Eicher Motors, TVS Motor.

What is inkl?
The world’s most important news, from 100+ trusted global sources, in one place.
Morning Edition
Your daily
news overview

Morning Edition ensures you start your day well informed.

No paywalls, no clickbait, no ads
Enjoy beautiful reading

Content is only half the story. The world's best news experience is free from distraction: ad-free, clickbait-free, and beautifully designed.

Expert Curation
The news you need to know

Stories are ranked by proprietary algorithms based on importance and curated by real news journalists to ensure that you receive the most important stories as they break.

Dive Deeper:
SBI bets on corporate credit pick up to drive growth in FY23
Corporates are already utilizing a larger portion of their working capital limits sanctioned by the bank, at 56% now, with…
Tata Motors’ shares ride high on Q4 margin surprise
This comes on the back of better-than-expected margin performance in its fourth quarter results (Q4FY22).
Rakesh Jhunjhunwala portfolio: Brokerage sees over 30% upside on this banking stock
Given inexpensive valuation, the brokerage has recommended Buy on Canara Bank shares
Rakesh Jhunjhunwala held this public sector bank is a hot pick on markets post Q4 earnings
For the full year FY22, net profit climbed to ₹5,678.42 crore more than doubled from ₹2,557.58 crore in FY21. Net…
One subscription that gives you access to news from hundreds of sites
Prudent information about the Prudent Corporate Advisory Services IPO
Key points to keep in mind before applying for Prudent Corporate Advisory Services IPO.
Consumer durable products to get costlier ahead as rupee plays spoilsport
The Consumer Electronics and Appliances Manufacturers Association (CEAMA) believes that the fall of the Indian rupee against the dollar is…
Get all your news in one place