By Sameer Bhardwaj

Copyright indiatimes

Even though benchmark Indian indices stumbled at the start of 2025, the outlook for domestic growth is robust. The Reserve Bank of India’s (RBI) policy stance, higher government spending, and the recent Goods & Services Tax (GST) reset will keep economic momentum intact. The International Monetary Fund’s (IMF) July 2025 World Economic Outlook projects India to outpace major developed and emerging economies in growth during 2025 and 2026. India’s real GDP is forecast to grow at 6.4% year-on-year in both years, compared to world economic growth projections at 3.0% and 3.1%, respectively.Income Tax GuideIncome Tax Slabs FY 2025-26Income Tax Calculator 2025New Income Tax Bill 2025One strategy for identifying potential outperformers is to compare a company’s earnings or Profit After Tax (PAT) growth with the pace of economic growth. Companies whose PAT consistently grows faster than the economy often exhibit strong operational efficiency, market leadership, and sustained demand for their products or services—traits that make them attractive to long-term investors.“Formalisation, digital adoption, technological upgrades, and a resilient financial system are reshaping the economy, delivering quiet productivity gains and boosting output per unit of capital and labour,” says Akhilesh Prakhya, Senior Analyst at SKG Investment & Advisory.Earnings vs economic growthAnirudh Garg, Partner and Fund Manager, INVasset PMS, says that identifying companies that consistently deliver profit growth above India’s nominal GDP is a robust filter. It isolates businesses that not only ride cyclical upswings but also demonstrate pricing power, efficient cost structures, and strong demand visibility across varying macro conditions.
Economic growth and stock market performance are closely linked. When the economy expands, it encourages corporate investment and business growth, which in turn boosts employment and household incomes. This rise in income strengthens consumer confidence, leading to increased spending on goods and services. As demand grows, companies experience higher revenues and profits, which fuel investor optimism and drive stock markets upward.Conversely, during economic downturns or recessions, consumer spending typically declines. The demand reduction negatively impacts corporate earnings, dampens investor sentiment, and leads to declining stock prices.Economic growth is measured using Gross Domestic Product (GDP), which represents the total value of goods and services produced within a country over a specific period. GDP can be measured in nominal terms (at current prices, not adjusted for inflation) or real terms (adjusted for inflation to reflect actual output growth).The ratio of corporate earnings to GDP serves as a valuable indicator of the health and resilience of the corporate sector within the broader economy. According to a Motilal Oswal report released in June 2025, the corporate profit-to-GDP ratio for the Nifty 500 universe stood at 4.7% in 2024–25, marking a 17-year high. The report further notes that this ratio is poised to expand, with Nifty earnings projected to grow by 12%, while nominal GDP is expected to grow by 10.8% year-on-year in 2025–26.What does the data say?An analysis of 2,400 companies with a market capitalisation of over Rs.100 crore and a three-year share price history reveals that 303 companies have consistently recorded earnings or PAT growth higher than India’s nominal GDP growth over the past three financial years (2022–23 to 2024–25). The data is sourced from Reuters-Refinitiv.The group of these 303 companies has generated an equal-weighted average return of 12.2%, with returns of 43.4% and 51.9% in the last one, two, and three years, respectively. Comparatively, the Nifty 500 equal-weight index generated 5.1%, 19.7% and 21.9% returns during the same period. Returns greater than one year are compounded annualised and are based on 23 September 2025 closing values.Earnings champions
How does this translate to which stocks you need to buy? While a diversified portfolio is ideal, a stock picker’s approach will yield better results, according to experts, because individual stock selection becomes more critical than following broad market trends. Puneet Sharma, Chief Executive Officer (CEO) and Fund Manager at Whitespace Alpha, CAT 3, AIF, is optimistic on Indian equities and believes this is a market that continues to offer long-term alpha opportunities for disciplined investors.Experts like Sharma recommend that picking stocks whose growth is as much as, or more than, India’s GDP growth is one strategy for identifying long-term winners.How effective is the strategy?While the strategy could help spot good stocks, the investors need to be careful, as reported exceptional items, lower tax incidence, or temporary interest savings in a falling-rate environment can distort PAT.”It is essential to confirm that revenue and operating profit trends support the PAT growth, while balance sheet strength (low leverage, high return on capital employed) validates sustainability,” adds Garg.Also, earnings growth should be backed by productivity and capital efficiency. Prakhya believes that the sharper filter is not just “earnings greater than GDP” but “earnings comfortably greater than GDP and cost of equity, reinforced by productivity gains and cash generation.” Those companies will compound through cycles, rather than relying on a favourable macro backdrop.The following four companies have good analyst coverage, and their valuations are at a discount to their respective long-term averages. In other words, the current P/E (price-to-earnings ratio) of these companies is less than their respective 5-year average P/E ratios.Dixon TechnologiesDiversified electronic manufacturing services player serving LED TVs, lighting, mobiles, and washing machines.Strong client relationships with reputable companies.Healthy order inflows and operational scaling support future performance.Backward integration through joint ventures and partnerships.Mobile segment outperforms with volume growth from existing clients. Targeting 60-65 million units by 2026-27 through Vivo partnership.Focus on increasing smartphone value addition to improve margins.Expanding LED TV capacity and refrigerator portfolio.Diversifying home appliance offerings and scaling up the lighting segment.Larsen & ToubroEngineering, procurement and construction player serving multiple sectors with a competitive advantage from in-house design and engineering capabilities.Strong long-term prospects supported by the government¡¦s infrastructure development focus. Order inflows grew 33% year-on-year in the June 2025 quarter across domestic and overseas markets.Order backlog of Rs.6.1 lakh crore provides strong revenue visibility.Management capitalising on emerging sectors: hydrocarbons, semiconductors, and green hydrogen for long-term growth.Key positives include prospects in the Middle East, a healthy domestic pipeline, improved execution profitability, and energy transition initiatives.Eicher MotorsRobust automotive business with established Royal Enfield brand, strong product portfolio, and extensive dealer network.Benefits from rising premiumisation, favourable income tax changes, boosting urban demand, and premium segment leadership.A global expansion focus, with a deepening presence in Brazil, Thailand, and Bangladesh, provides visibility for growth.An aggressive product pipeline and tangible EV steps, with the “Flying Flea” platform generating strong global interest.Well-positioned for sustained growth momentum backed by a strong brand, disciplined cost control, and prudent capital allocation.Affle 3iGlobal technology company with a consumer intelligence platform using a differentiated RoI-linked revenue model.Benefits emerging from growing digitisation, government support, smartphone penetration, and digital commerce growth.Management guides for 10x growth over 2024-35, driven by technology investments and fraud detection.Expanded beyond India and emerging markets into Latin America, the Middle East, and developed markets through acquisitions and partnerships. Key strengths include rising CPCU (cost per converted user) realisations, international expansion, and limited downside due to strong operating cash flows.