Apart from liquidity, the sharp rise in the market in the past few months has also been attributed to an increasing number of earnings upgrades on the back of much-better-?than-expected results for the June quarter. The results for the September quarter, however, have had a different affect. In fact, last quarter’s results have led to earnings downgrades by several brokers.

They point out that this is unlike the first quarter of 2009-10, when “large positive surprises in the automobiles, banking and cement sectors led to earnings upgrades". After the September quarter results, though, the Kotak analysts see “limited scope for earnings upgrades and do not rule out further risks to the earnings of the cement, energy and telecom sectors".

Also Read T Rowe Price stake purchase in UTI AMC is value for money

Fiscal stimulus rollback: how excise hikes will affect margins

Rising rubber prices hit Apollo Tyres stock

Citigroup Inc. analysts have said that after two quarters of positive earnings surprises, earnings estimates have more or less reflected corporate performance in the September quarter. According to them, “Overall estimates for FY10 and FY11 have not seen any major revision in the earnings season."

Morgan Stanley research, however, has struck a bullish note, best illustrated by the title of its report, A New Earnings Cycle to Begin Next Quarter. According to the report, “FY2010 earnings were revised up for five out of 10 sectors and by 0.5% for the market aggregate at the end of the earnings season. Upward revisions outstripped downward revisions 2:1 at the end of the season versus where earnings were at the start of the season. Telecom sector seems to have surprised the consensus negatively. The revisions were a bit more broad-based for FY2011 earnings. This indicates an element of positive surprise in the quarterly earnings, but not by a big margin." It, however, points out that the pace of earnings revisions is slowing.

The lack of momentum on earnings revisions is not good news for the market. Small wonder then that analysts have already started to look at fiscal 2012 to justify their bullish forecasts. UBS Securities India Pvt. Ltd, for example, forecasts a Sensex EPS of Rs1,344 for fiscal 2012, and says: “We base our March 2011 BSE Sensex target of 20,000 on a forward P-E (price-earnings) multiple of 14.9 times fiscal 2012 earnings EPS."

As long as liquidity continues to push stock prices up, analysts will have to seek new reasons to justify the price action.

Write to us at marktomarket@livemint.com