Mumbai: A Mint analysis of 150 companies that have announced results for the July-September quarter so far, including five that are part of the benchmark 30-company Sensex index, shows profit growth has slowed to 11.10%, a sharp drop from the 49.90% growth in the year-ago second quarter.

This means that Indian companies continued at their slowest quarterly growth in at least two years as the global economic slowdown, tightening liquidity and rising costs took their toll.

Analysts, meanwhile, are pointing to gloomy forecasts and seemingly early indicators of worsening macroeconomic fundamentals. As a result, many analysts and economists alike are now predicting a grimmer December quarter in view of the liquidity crisis that’s gripped the country.

Also See: Sluggish Growth (Graphic)

The July-September performance so far is the slowest earnings growth in 10 quarters for the same list of early reporting companies, barring the 0.27% decline in profits in the fourth quarter of fiscal 2008 that ended 31 March. Combined net sales growth during the quarter was 27.01%, again slower than the 33.74% rise in the year-ago second quarter.

“Fundamentals are only going to deteriorate," predicts Vinod Kumar Sharma, director and head of research at Anagram Securities. “In the current (Oct-Dec) quarter, companies are not getting enough working capital. Results going forward will worsen."

Agrees Hitesh Agarwal, head of research at brokerage Angel Broking Ltd. “Operating margins of most companies are under pressure due to high input costs," he says. “Many companies who have raised debt in the past one-two years will find the interest costs magnified in light of the poor operating performance."

To be sure, the companies that have reported results so far are only a small sample of the 3,000 or so firms that are listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange.

Meanwhile, all the five BSE Sensex companies that have announced their results so far — Infosys Technologies Ltd, Housing Development Finance Corp. Ltd, HDFC Bank Ltd, Satyam Computer Services Ltd, and Larsen and Toubro Ltd (L&T) — posted double-digit profit growth in the September quarter, aided to an extent by the weakening rupee. Of all the companies reporting so far, 67 have posted a loss.

But the weakening fiscal conditions in the US and Europe forced technology services giant Infosys to cut its dollar revenue forecast for the full year on fears that banking and financial sector clients would curtail technology-related spending. L&T, India’s largest engineering company by sales, also said it may see a slowdown in order inflows because of the fiscal crisis.

Satyam, India’s fourth biggest computer services provider by revenue, also cut its full-year dollar sales forecast, and echoed a caution raised by Infosys that restricted technology spending by financial customers would spread to retail and manufacturing clients.

“Topline(s) will also come under pressure the next one or two quarters," said Shahina Mukadam, director at advisory firm Varun Capital Markets. “Many projects are getting delayed in spite of demand because of lack of funding availability."

Analysts also expect the slowdown in earnings growth to continue as macroeconomic indicators worsen.

Inflation is still ruling above 11%, trade deficit is at $64 billion, and the Index of Industrial Production (IIP) is at one of the lowest levels in recent times at 4.9%. Indeed, economists are downgrading their economic growth estimates.

“Corporate earnings are a leading indicator of slowdown," said N.R. Bhanumurthy, associate professor at the Institute of Economic Growth. “The expected slowdown can be attributed to the decline in both external and domestic demand and the high cost of production."

Analysts expect to see a clearer picture by the end of this week when some large Sensex and Nifty-listed firms announce their earnings.

Hero Honda Motors Ltd, which makes half the two-wheelers sold in India, will announce its results on Tuesday while big information technology firms Wipro Ltd and Tata Consultancy Services Ltd will declare results the following day. Reliance Industries Ltd, the largest in the country by market capitalization, will report its earnings on Thursday.