Mumbai: Profits of 281 firms that have so far declared earnings for the three months ended September grew by 23%—twice the pace of the June quarter. Analysts and fund managers say the results have mostly been in line with expectations, but it is early days yet, given that a majority of companies are yet to declare their earnings.

The market reaction has been muted because the results follow a sharp September rally, when liquidity chased asset classes across emerging markets, driving up prices and boosting the Sensex 11.7%. The market has traded mostly in a flat range over the past week, rising 0.2%.

“The positives have already been factored in and only if something bad happens will there be a major reaction", said Sandeep Singal, co-head of institutional equities at Emkay Global Financial Services Ltd.

He added that earnings expectations were fairly moderate after a mixed June quarter, in which stand-alone profits of Sensex firms rose only by 1.63%.

Aggregate earnings of the 15 Nifty firms that have declared their results so far grew 17.3% in the September quarter after increasing by 9.3% in the previous three months. The Nifty comprises the 50 most liquid stocks traded on the National Stock Exchange.

Graphic: Yogesh Kumar/Mint

Despite concerns of slowing economic growth owing to the weak factory output growth of 5.6% in August, corporate sales have not shown any signs of flagging.

“The policy implication of August IIP (Index of Industrial Production) data release is limited, in our view, given the volatile nature of the data," Deutsche Bank AG economists Taimur Baig and Kaushik Das wrote in a 22 October research note.

“The actual concern is with the slow credit growth and the lack of momentum in the investment cycle", said Tirthankar Patnaik, strategist at Religare Capital Markets Ltd.

The consensus estimate of consolidated earnings per share of Sensex companies in the current fiscal remains unchanged at around 1,050, according to Bloomberg data. This indicates that the projection of Indian corporate profit growth at 20% is on track.

At least two Nifty stocks —Tata Consultancy Services Ltd (TCS) with earnings growth of 34.5%, and Larsen and Toubro Ltd (L&T) with net profit growth of 32%—have beaten expectations. Cement makers ACC Ltd and Ambuja Cements Ltd disappointed with a 77% and 52% fall in profit, respectively.

Information technology and banking firms, which account for most of the companies that have declared results so far, have delivered good growth, said Rajat Rajgarhia, head of research at Motilal Oswal Financial Services Ltd. Company upgrades have dominated downgrades, he added.

The Mint earnings analysis counted net interest income (interest earned on loans minus the cost of deposits) and non-interest income as net sales of banks.

For manufacturing and services sector firms, income generated from activities not central to their main business was excluded from profit calculations.

“There is no major issue as far as fundamentals are concerned", said Sudhakar Shanbhag, chief investment officer at Kotak Mahindra Old Mutual Life Insurance Ltd. “Liquidity too should not be a matter of concern—the money that came in for the Coal India Ltd IPO (initial public offering) shows the demand for good quality stocks in emerging markets."

The IPO, which closed on Thursday, was subscribed 15.2 times, attracting 2.35 trillion from investors.

The cue for the next market move could well come from the expected monetary easing by the US Federal Reserve, which could lead to more inflows of money into emerging markets including India as funds seek better returns.

Foreign institutional investors (FIIs) have invested a record $24 billion (Rs 1.07 trillion) in Indian equities this year.

Strong economic growth and expectations of rupee appreciation might attract higher inflows in the second half of the fiscal, analysts say. The rupee has appreciated by over 4% in the current year.

Any disappointment from the Fed, which is likely to announce its course of action on 3 November, might lead to some weakening in inflows, Patnaik said.

The other risk arises from the likelihood of a slowdown in China, which might lead to a correction in commodity prices and impact equity markets, he added.