Mumbai: Early signs of a slowdown in profit growth and the prospect of fewer earnings revisions will weigh down share prices that have been trapped in a tight range since October, say analysts and fund managers around the middle of the earnings season.

The profit numbers released till now for the March quarter are impressive, with companies that make up the 50-share Nifty announcing their best profit growth in nine quarters and companies that constitute the 30-share Sensex reporting their best profit growth in three quarters. However, profits of a broader sample of 1,923 firms grew at around half of the comparable number for the December quarter.

“The earnings are more or less in line with what the markets expected," said N. Sethuram Iyer, chief investment officer at Shinsei Asset Management Co. Ltd, which manages some Rs222 crore of investor wealth. “I don’t expect earnings to give an added fillip because the markets have already discounted this."

Graphic: Yogesh Kumar/Mint

“The big companies have not surprised," said Girish Pai, head of research at Centrum Broking Pvt. Ltd. “For financial year 2011, we have probably seen the peak and not going to see any more upgrades."

A Mint analysis shows that 31 firms listed on the Nifty on average posted a year-on-year net profit increase of 23.9% for the March quarter, as firms sold more. That’s their best performance since the December 2007 quarter, when earnings grew by 45.4%. Profit at firms in the narrower 30-stock Sensex grew by 13.61% on average in the three months, the best in three quarters. Except Grasim, all Sensex firms are part of the Nifty.

Sales for this bunch of firms grew 35.95% for the three months ended March, the best since December 2006 and analysts point out that the cause is increased demand and not increased price. A broader sample of 1,923 companies posted an average 24% growth in net profits. But this is less than the 46% profit growth they showed in December.

The rate of profit growth is expected to slacken further and analysts are not upgrading earnings at the pace seen last fiscal. Citigroup Global Markets research shows that more companies have seen earnings downgrades this fiscal compared with those being upgraded.

“India’s earnings revisions momentum is trending down—and we expect it to remain tepid for a while," wrote Aditya Narain, head of research at Citigroup’s India securities unit in a 24 May note. “India’s earnings exposure to commodity-linked businesses is high—and commodity price weakness could further pressure earnings expectations (though positive for the macro—on inflation and oil subsidies)." To be sure, these are early days, with another 20 Nifty firms such as Tata Motors Ltd and ONGC Ltd yet to reveal their numbers. But with Europe still in turmoil despite the $1 trillion (Rs46.7 trillion) bailout package, fund managers and analysts fear slowing of world economic growth. This in turn could further weaken commodity prices and therefore they don’t expect major positive surprises. At least one-third of the Sensex firms’ profits is contributed by commodity firms.