The top companies of this year are batting in peak form, driving the rise of the world's fastest-growing economy

Swelling top lines, stronger balance sheets, the emergence of new-age companies that use technology to do things differently and better, and a soaring stock market. The latest ET 500 rankings, the definitive list of the biggest publicly traded companies operating in the world's fastest-growing economy, reflect the changing face of India Inc.

At the aggregate level, the incumbent companies show manageable debt and improving ability to service it, adequate equity and healthy top-line and bottom-line growth. While oil and gas has retained its status as the biggest sector in the listing based on annual revenue, banking leads in net profit share aided by buoyancy in credit offtake and improving asset quality. India's banks are again in the pink of health, a good sign for the economy amid signs of a pickup in private capex.

The total revenue of the ET 500 companies increased by 12.7% annually between FY18 and FY23 to Rs151.2 lakh crore. The total revenue of ET 500 companies in FY23 was 55.5% of the gross domestic product (GDP) at current prices compared with 49.6% in FY18. This reflects the increasing formalisation of the economy that is benefiting the big companies.

The sample's net profit rose by 23.5% annually to Rs11 lakh crore between FY18 and FY23. The net margin widened to 7.3% from 4.6%, indicating a significant improvement in profitability in the post-pandemic years.

After excluding banking and finance companies to better understand India Inc's balance sheet, total debt rose by an annual 5.1% during the period under observation but total equity grew at a faster rate of 9.9% annually. (The truncated sample of companies varied between 425 and 436 during the period depending upon how many lenders made it to the ET 500 list in a particular year.) As a result, the debt-equity (D/E) ratio improved to 0.7 in FY23 from 0.9 in FY18. A lower D/E is desirable since companies have more room to borrow for future expansion. With rising profits, the interest coverage ratio (ICR) improved to 4.6 from 3.5 during the period. ICR indicates the ability to service debt, which means an improvement in the ratio is desirable.

The share of the oil and gas sector in aggregate revenue expanded to 25.3% in FY23 from 21.9% in FY18. The sector's revenue doubled to Rs38.2 lakh crore between FY18 and FY23. The higher revenue share can be attributed to the focused efforts of Reliance Industries, the country's biggest company by revenue and market capitalisation, to diversify into telecom and retail services, which bolstered consolidated revenue. After considering only the oil-to-chemicals revenue of RIL, the FY23 share of the oil and gas sector in ET 500's total revenue was adjusted to 23.3%, still the highest among all the sectors.

The oil and gas sector was followed by banks, which contributed 12.6% to the aggregate revenue, and insurance with 7.6%. The latter was lifted by the inclusion of the Life Insurance Corporation of India (LIC), the country's biggest life insurer, in the ET 500.

In terms of aggregate net profit, banks had the highest share of 22.7%, followed by the oil and gas sector at 12.6% in FY23. Higher credit offtake and improving asset quality have helped banks register a commendable performance. According to RBI data, the gross nonperforming asset (GNPA) ratio of scheduled commercial banks fell to a 10-year low of 3.9% in FY23. It was at 11.6% in FY18. In addition, the year-on-year credit growth improved to 15.4% as of March 2023 compared with around 10% as of March 2018. In FY23, banks in the ET 500 reported a total net profit of Rs2.5 lakh crore compared with a net loss of Rs35,611 crore in FY18.

The PSU pack, too, has improved its performance over the years. The revenue share of companies where the government owns a majority stake increased to 22% in FY23 from 20% in FY18. In the case of net profit, the PSU share has risen to 20.8% from 4.3%. A sharp increase in the net profit of LIC, nearly nine times year-on-year, was a major driver of the jump in PSUs' higher profit share.

Another highlight of the rankings is that the large sectors continue to dominate the ET 500 financial numbers. The top five sectors including oil and gas, banks, insurance, IT, and automobiles accounted for half the aggregate revenue and net profit of the ET 500 rankings in FY23. The proportion in FY18 was 55% in the case of revenue and 45% for profit with the top sectors being oil and gas, banks, automobiles, IT and steel.

The stock performance of the ET 500 companies in the current fiscal year so far has been buoyant with only 23 failing to generate a return. Of the total, 441 companies earned double-digit returns, 230 gained 50% or more on the bourses, while 98 stocks more than doubled.

Steel maker Jai Balaji ranked 308, topped the charts after its stock gained 15 times following a sharp jump in net profit to Rs.372 crore in the first half of FY24 compared with Rs57 crore in the whole of FY23.

Several privately held companies are now making a beeline for the equity market through the IPO route to take advantage of market liquidity. These companies mostly have promising business models and high growth potential. As their businesses reach a certain size, some of them will enter the ET 500 ranking, adding to the vibrancy of the list.